What’s New

• AME Elite Consortium Berhad (AME) has successfully bagged a contract sum of RM359m project for the construction and completion of:

1. 3 blocks of single-storey factory/warehouse, 1 unit of 5-storey office block, 1 unit of single-storey logistic office and other ancillary buildings, and
    
2. 1 block of single-storey factory/warehouse together with a 2-storey utility room and a 2- storey mechanical and electrical room, 1 unit of 2- storey office and other ancillary buildings.

• This new integrated production facility, logistic warehouse and office building is located in Kawasan Perindustrian Tanjung Langsat, Johor Bahru, measuring a total built-up area of c.2.6m sf.
   
• The project was awarded by Ye Chiu Non-Ferrous Metal (M) Sdn Bhd (YCNFM). The principal activities of the company are involved in the manufacturing and trading of aluminium alloy ingot and trading of aluminium scraps. YCNFM is an indirect wholly-owned Malaysian subsidiary of Ye Chiu Metal Recycling (China) Ltd, a corporation listed on the Shanghai Stock Exchange that specialises in the recycling and producing aluminium alloy with presence in China, Malaysia and the United States.

Comment

• Positive surprise. We are overwhelmed by this sizeable contract win as this is AME’s largest construction contract thus far. The project is for a duration of 18 months, commencing in early November 2021 and to be fully completed by early May 2023. Hence, the project is expected to contribute positively to the Group’s topline and bottom line from FY22 till FY23. Assuming operating margin of 11% (in view of rising raw material prices), we envisage the project to contribute RM30m to the Group’s net earnings with majority profit to be booked in FY23.
   
• Against all odds. Amid prevailing gloomy construction outlook, the Group has successfully clinched RM403m worth of jobs, which exceeded its target order book of RM150-200m for FY22. Currently, AME boasts an outstanding orderbook of more than RM400m (after 2QFY22 profit recognition) of construction and engineering works. On its property development segment, we believe AME could achieve higher FY22 industrial property sales than FY21’s RM140.3m and meet its target of RM200- 250m (the Group chalked up sales of RM64.8m in 1QFY22) with the reopening of border in sight.

Earnings Outlook/Revision

• Although new contract win exceeds our assumption of RM230m for FY22, its property sales yet to hit our forecast. Hence, we keep our net profit forecasts of RM58.4m for FY22 and RM69.5m for FY23 at this point.

Valuation & Recommendation

• Maintain HOLD on AME with an unchanged target price of RM1.85. Our target price is pegged at PE multiple of 18x FY23F fully-diluted EPS which is above its +1SD of 1-year mean PE.
   
• Whilst we deem the stock is fully valued, we still favour the Group over the long run banking on its: 1) potential landbanking in Klang Valley and 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).

Source: JF Apex Securities Research - 25 Oct 2021