Results

• AME Elite Consortium Berhad (AME) posted 3QFY22 core net earnings of RM10.7m, which tumbled 8.5% yoy but increased 9.2% qoq.

• 9MFY22 earnings lag our forecast. The Group achieved 9MFY22 core net profit of RM27.7m, -2.5% yoy, which accounts for 50% of our full year forecast. The weaker-than-expected result is mainly due to lower recognition of construction progress (9M revenue only constitutes 52% of our full year topline estimate). Nevertheless, we opine that the Group would catch up on its construction progress in 4QFY22F judging by past experience (4QFY21: RM21.1m core profit vs 9MFY21: RM28.4m).

Comment

• Lower progress billings weighed on yoy performance. AME recorded weaker yoy results mainly dragged by poor performances of Construction (segmental PBT: -34.5% yoy), Property Development (segmental PBT: -35.4% yoy) and Engineering (segmental PBT: -50.0% yoy) amid better showing by Property Investment & Management Services (segmental PBT: +26.9% yoy). The decrease in construction revenue was mainly due to the timing of the construction projects, i.e. certain existing projects were near completion and the newly secured projects were at the initial stage. Likewise, the decrease in revenue of property development was due to the lower stages of work completed and timing of income recognition. Meanwhile, the drop in engineering revenue was due to completion of certain engineering projects. However, the better performance posted by the property investment segment was driven by additional units of factory leased by tenants and higher rental income from workers’ dormitories. The abovementioned reasons also dragged down the Group’s 9M results.

• Headwinds ahead. Management highlighted that the take-up of the Group’s i-Park industrial properties has been under pressure from the prolonged border closures and lower foreign direct investment. The hike in building material prices has also been adversely impacting the financial performance of the Group. Having said that, management believes that it possess a healthy level of unbilled sales from industrial properties at i-Parks, as well as construction and engineering orderbook, which will underpin its bottom line till FY23F. Moving forward, AME will continue developing i-Park @ Senai Airport City (Phase 3) and expand its construction and property development segments to improve the Group’s overall profitability.

Earnings Outlook/Revision

• We reduce our net profit forecasts for FY22 and FY23 by 9.7% and 11.1% to RM49.6m and RM58.2m respectively after lowering the progress billings, sales and job win for its Property Development and Engineering segments.

Valuation & Recommendation

• Maintain HOLD on AME with a lower target price of RM1.63 following our EPS cut. Our revised target price is pegged at PE multiple of 18x FY23F fully-diluted EPS which is at its +1SD of 1-year mean PE. Whilst we deem the stock is fully valued at this junction, we still favour the Group over the longer run due to resilient demand on industrial properties, the Group’s potential landbanking beyond Johor and listing of industrial REIT in the short term.

Source: JF Apex Securities Research - 25 Feb 2022