Results

AME Elite Consortium Berhad (AME) recorded 2QFY22 net earnings of RM9.8m, which tumbled 14.0% yoy but soared 36.1% qoq.

1H earnings lag our forecast. The Group achieved 1HFY22 net profit of RM17.0m, +1.8% yoy, which accounts for 30% of our full year forecast. The weaker-than-expected result is mainly due to lower recognition of construction progress (1H revenue constitutes 33% of our full year topline estimate) coupled with loss incurred in its Construction segment as affected by lockdown pursuant to the pandemic. Nevertheless, we opine that the Group would catch up on its construction progress in 2HFY22F.

Comment

Lockdown affected yoy and qoq performances. During 2QFY22, the Group’s Construction division (segmental revenue: -60.0% yoy; segmental loss of RM1.1m vs profit of RM4.4m in 2QFY21) and Property Development division (segmental revenue: +15.3% yoy; segmental profit: -57.0% yoy) were disrupted by the National Recovery Plan (NRP) implemented by the government commencing 29 June 2021. The restricted business activities and limited manpower capacity caused a delay in the completion of projects and income recognition of the Group. The slower progression in the stage of completion of the on-going construction and property development projects dragged down AME’s overall yoy performance. On qoq comparison, the better showings by its Property Development (segmental revenue: +151.6% qoq; segmental profit: +975.0% yoy) and Engineering (segmental revenue: +8.3% qoq; segmental profit: +190.9% qoq) helped to lift the overall results amid lackluster performance posted by the Construction (segmental revenue: -45.8% qoq; segmental loss of RM1.1m vs profit of RM4.2m in 1QFY22).

Promising outlook. AME clinched RM68.8m new property sales in 1HFY22 and now awaits another RM59.4m bookings to be converted into SPA in 3QFY22 onwards. As of 2QFY22, the Group has an unbilled sales of RM67.8m. On its Construction segment, AME has an outstanding orderbook of c.RM450m as of todate after securing a sizeable construction project recently. Meanwhile, for its workers’ dormitories business, the Group expects higher contribution from the rental of workers’ dormitories mainly its i-Stay@Indahpura in which 2700 beds to be added into existing capacity, bringing total capacity to c.5,200 beds with target completion in March/April 2022. We shall see an additional yearly rental income of RM7.5m to the Group if operating at full capacity.

Wait for REIT IPO is finally over. AME has announced that it will undertake REIT IPO with RM557m of industrial assets. The initial investment portfolio will comprise a total of 34 industrial buildings and workers’ dormitories located in or near AME’s managed industrial parks, namely i-Park@Senai Airport City, i-Park@Indahpura, and i-Park@SiLC. The identified real estates have ongoing tenancy agreements with AME’s domestic and foreign clients, with tenancy period of between 2 to 12 years. Upon the completion of the Proposed Offering which is expected in 2QCY2022, AME will be the controlling Unitholders of AME REIT holding at least 51.0% of total issued Units. AME is expected to raise RM254.8m proceeds based on illustrative IPO price of RM1. This is to fund future investment property development and investment projects, and repayment of borrowings.

Earnings Outlook/Revision

We reduce our net profit forecasts for FY22 and FY23 by 6% and 5.8% to RM54.9m and RM65.5m respectively after lowering the share of JV profit (i-Park@Indahpura (Phase 3) and the progress billings of Construction segment.

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 - 26 Nov 2021