Results

• AME Elite Consortium Berhad (AME) posted 4QFY22 core net earnings of RM18.6m (excluding fair value gain on investment properties), tumbling 7.0% yoy but surging 73.8% qoq.

• FY22 earnings below expectation. The Group achieved FY22 core net profit of RM46.3m, slightly down 4.3% yoy, which accounts for 93% of our full year forecast. The weaker-than-expected result is mainly due to lower recognition of construction progress coupled with weaker margin under its Construction segment.

Comment

• Lower yoy quarterly results bogged down by across-the-board weaker segmental performance. AME recorded lower yoy results mainly dragged by poor performances of Construction (segmental PBT: -76.2% yoy), Property Development (segmental PBT: -22.6% yoy) and Engineering (segmental PBT: -20.0% yoy). The higher raw material cost and shortage of labour weighed on its Construction segment as its segmental margin down by 14.4ppt. Meanwhile, the decline in top line and bottom line of Property Development segment was dragged down by the lower stages of work completed and timing of income recognition. For Engineering division, the weaker performance was due to most of the projects were near completion.

• Weaker FY22. For the full year, AME posted lower yoy results as performance was dragged down by its Construction (segmental PBT: -51.0% yoy) and Property Development (segmental PBT: -39.6% yoy) divisions. The decrease in these two segments was attributable to lower progress billings and weaker margin achieved.

• Proposed interim dividend of 2.5 sen/share. The Group has declared an interim dividend of 2.5 sen/share (vs 4.0 sen/share in FY21) to reward its shareholders. The Exdate is on 15 June 22.

• Healthy unbilled sales of industrial properties and construction orderbook. AME successfully clinched RM37.6m new property sales during 4QFY22 and a total of RM168.4m sales for FY22. As of 4QFY22, the Group has an unbilled sales of RM91.3m. On its Construction front, AME has an outstanding orderbook of RM399.8m. The Group commenced the development of its new industrial park, namely i-TechValley in 1QFY23 and will continue developing i-Park @ Senai Airport City (Phase 3) to improve its profitability moving forward.

• Free up cash for future landbanking upon listing of REIT. Upon listing its REIT in 3QCY22, the Group is expected to raise RM255m from the exercise and proceeds are mainly used for future industrial property development and investment projects including land acquisitions and JV (RM145m) besides debt settlement (RM105m). Also, AME will have more room to leverage as gearing ratio will be reduced from 0.4x to 0.2x. In the future, the Group would also be able to unlock the value of its leasing property assets by securitising those assets which fit the investment criteria of AME REIT.

Earnings Outlook/Revision

• We fine tune our FY23F core net earnings forecast to RM51.7m (from RM58.2m) after factoring in the impact of its REIT listing. Our FY23F core net earnings exclude c.RM36m disposal gain pursuant to the exercise. We also introduce our FY24F core net profit forecast of RM50.9m.

Valuation & Recommendation

• Maintain HOLD on AME with an unchanged target price of RM1.63. Our target price is pegged at PE multiple of 20x FY23F fully-diluted EPS which is above its +1SD of 2-year mean PE.

• Waiting for catalyst. 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, as well as the Group’s potential landbanking beyond Johor after listing of its REIT.

Source: JF Apex Securities Research - 27 May 2022