Results

• AME posted a core net profit of RM11.4m for its 2QFY21 result, tumbling 27.8% yoy but rebounding strongly by 115.1% qoq.

• 1HFY21 below expectations. The Group chalked up RM16.7m core net profit for its 1HFY21 result (-42.2% yoy) which accounts for 26-27% of our in-house and street estimates. The lower-than-expected result was mainly due to lukewarm performances posted by its Construction and Engineering Divisions.

Comment

• Construction and Engineering segments weighed on yoy performance. The subdued yoy result for this quarter was bogged down by the Group’s Construction (EBIT: - 42.9%) and Engineering (swung into losses) businesses no thanks to the lower profit margin of the large-scale project amid segmental revenue increased by 40.0% and 27.7% respectively. Moreover, decrease in the Group’s JV profit, - 67.6% due to lower sales of industrial properties coupled with the decline in rental income under its Property Investment & Management Services (topline: -16.3%; bottom line: -26.1%) further dragged down the overall result. Likewise, the abovementioned reasons also weighed on the Group’s 1HFY21 result on top of a sluggish 1QFY21 which was affected by the Movement Control Order (MCO), resulting in higher fixed costs incurred and delay in construction progress.

• Stronger qoq as expected. Meanwhile, the stronger qoq performance was mainly attributable to resumption of business activities and operations with full workforce capacity. The Group also took a proactive approach by speeding up of its construction, engineering and property development progresses during the Recovery Movement Control Order (RMCO).

• Capitalizing on economic recovery with ready landbank. To recap, AME had entered into a Heads of Agreement (HOA) with UEM Sunrise to acquire 169.8 acres of freehold industrial land in Nusajaya for a total purchase consideration of RM434.3m (land cost of RM59psf). This has successfully replenished its landbank in time to capitalize on potential MNCs shifting out their manufacturing base from China to ASEAN countries post-pandemic for the purposes of supply chain diversification after the incident of Covid-19 and protracted US-China trade tension. The designated settings in AME’s industrial parks are highly favoured by local and foreign corporates. With this strategic location for industrial player to set up a comprehensive value chain, we believe the Group will clinch more land sales deals as the Group has seen overwhelming responses on its i-Park@Senai Airport City 1 & 2.

Earnings Outlook/Revision

• We slash our FY21F and FY22F core net earnings by 18.8% and 22.1% to RM51.9m and RM65.6m respectively after lowering our target orderbook assumptions, progress billings and profit margins for the Construction and Engineering Divisions.

Valuation & Recommendation

• We maintain BUY call on AME with a higher target price of RM2.53 (RM2.21 previously) after well roll over our valuation to FY22F, ascribing PE multiple of 16.5x which is in line with current valuations of other large-cap construction players.

• We like the stock for its: 1) potential landbanking in Klang Valley, 2) potential listing of industrial REIT in the immediate term; and 3) unique busines model which is relatively unfazed by prevailing pandemic and economic downturn.

Source: JF Apex Securities Research - 26 Nov 2020