Results

• AME posted a core net profit of RM11.7m (after excluding its fair value gain on investment properties net of tax and MI of RM3.4m) for its 3QFY21 result, sliding 20.9% yoy but up marginally by 2.6% qoq.

• 9MFY21 below expectation. The Group chalked up RM28.4m core net profit for its 9MFY21 result (-35.0% yoy) which accounts for 55% of our estimate. The lower-than expected result was mainly due to weaker-than-expected margins recorded by its Construction and Engineering Divisions amid top line constitutes 72% of our forecast.

Comment

• Lower yoy but slightly better qoq results. The weaker yoy result for this quarter was mainly due to its Construction segment as segmental revenue and operating profit tumbled 12.0% and 57.4% yoy respectively. This was due to the timing of external construction projects as it involved in more internal construction activities pursuant to higher sales of industrial properties, coupled with lower margin works during this quarter, as segmental margin slid 11.7ppts. On the other hand, the Group recorded slightly higher qoq results mainly underpinned by improved operational performances for its Construction (operating profit: +31.8% qoq) and Engineering (turnaround to profit during this quarter from a loss in the immediate preceding quarter) segments.

• Healthy orderbook…... The Group has an outstanding orderbook of RM232.4m of construction and engineering works as of 2QFY21. AME has successfully clinched RM57.4m worth of jobs during 1HFY21, accounting for 42% of target orderbook of RM136m for FY21 (RM100m stemming from internal jobs) amid RM680m tender book (consisting of RM600m construction and RM80m engineering jobs). Moving forward, the Group envisages its segmental margin to improve further as more internal jobs to be secured and work on.

• …..and unbilled sales to underpin future earnings visibility. AME has chalked up RM27.4m new sales for its industrial properties in 1HFY21 on top of its RM74.1m unbilled sales as of 2QFY21 which render earnings visibility for the 2 years. 1HFY21 news sales constitute 14% of the full year sales target of RM200m. The Group is optimistic of achieving its FY21 target as it has received many enquiries, among others, some MNCs and existing tenants in the industrial parks.

• Landbank replenishment is still underway. AME plans to JV with other parties to venture beyond Johor for its landbanking. We understand that the Group is still in talks with the relevant parties and the negotiations are progressing well. The latest purchase of 169.8 acres of freehold industrial land in SiLC, Nusajaya for RM434.3m from UEM Sunrise in October last year could yield more than RM1.5b GDV to the Group. Overall, AME’s landbank is further boosted to c.232 acres which lasts for development till 2027.
   
• Boosting recurring income of property investment by capitalising on current opportunity. Pursuant to the government’s new guidelines on improving foreign workers’ accommodation or to meet the requirements under the Worker’s Minimum Standards of Housing and Amenities ACT 1990 (Act 446), we believe it could spur demand on its i Stay (worker dormitories) and the Group would build more dormitories in coming years to cater for the soaring demand.

Earnings Outlook/Revision

• We slash our FY21F and FY22F core net earnings by 16.8% and 15.2% to RM43.2m and RM55.6m respectively after lowering our profit margins for the Construction and Engineering Divisions as well as increasing the effective tax rates.

Valuation & Recommendation

• We maintain BUY call on AME with a lower target price of RM2.41 (previously RM2.53) after our earnings cut. Our revised target price is pegged at PE of 18.5x FY22F core EPS which is in line with upcycle valuations of large-cap construction players.

• We like the stock for its: 1) potential la ndbanking in Klang Valley, 2) potential listing of industrial REIT in the medium term with asset size of around RM500- 600m which includes i-Park (leasing of industrial properties) and i-Stay (worker dormitories); and 3) unique busines model which is relatively unfazed by prevailing pandemic and economic downturn.

Source: JF Apex Securities Research - 26 Feb 2021