Results

• AME Elite Consortium Berhad (AME) posted 1QFY23 core net earnings of RM7.5m, falling 1% yoy due to higher finance cost as well as lower profit margins by the Construction and Engineering segments. The flat profit came despite quarterly revenue surging 78.4% YoY to RM136.9m following higher revenue contribution from Construction (+112% yoy to RM88m) and Property Development (+73.5% yoy to RM32.3m) due to higher stages of completion.

• 1QFY23 earnings below expectation. The Group’s core net profit achieved 15% of our full year forecast. While revenue was within expectation after hitting 27% of our FY23 estimate. The weaker-than-expected result is mainly due to weaker margin under the Construction segment.

Comment

• Flat yoy quarterly results bogged down by weaker Construction performance. AME recorded flat yoy results mainly dragged by poor performances of Construction (segmental PBT: -32% yoy), and Engineering (segmental PBT: -70% yoy). The higher raw material cost and shortage of labour weighed on its Construction segment as its segmental margin down by 6.9ppt. Meanwhile, the Property Development segment achieved higher topline and bottomline (PBT: +1281% yoy)

• Weaker qoq. AME’s 1QFY23 core net profit declined 60% qoq following lower contribution from Property Development (-50% qoq) and Engineering (-84% qoq) while quarterly revenue fell 2% qoq as revenue growth from Construction (+21% qoq) was not enough to cushion the declines in Property Development (-30% qoq) and Engineering (-47% qoq).

• Healthy unbilled sales of industrial properties and construction orderbook. AME successfully clinched RM65.8m of new property sales in 1QFY23 which is 75% qoq higher than RM37.6m in 4QFY22. As of 1QFY23, the Group has unbilled sales of RM120.4m after growing from RM91.3m in the previous quarter. On its Construction front, AME has an outstanding orderbook of RM318.7m, down from RM399.8m in 4QFY22. In August, AME formed a JV with Majestic Builders Sdn Bhd to co-develop an integrated industrial park on a parcel of 176-acre freehold land in Seberang Perai Tengah, Penang.

• Free up cash for future landbanking upon listing of REIT. Upon listing its REIT on 20th September, 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 maintain our FY23F core net earnings forecast at RM51.7m in anticipation of better performance in view of the improved new property sales. Our FY23F core net earnings exclude c.RM36m disposal gain pursuant to the listing exercise.

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 - 29 Aug 2022