Results

• AME Elite Consortium Berhad (AME) delivered a 2QFY23 core net  earnings of RM9.5m (excluding fair value gain on disposal of  RM54.8m from the disposal of 10 plots of industrial properties to  AME REIT), dropping 3.3% YoY but rising 55.3% QoQ. Reported net  profit surged 367% YoY and 650% QoQ to RM45.8m due to the fair  value gain.

• Quarterly revenue surged 71% YoY and 7.7% QoQ to RM147.5m  following higher contribution from all business segments. 

• Below estimates. The Group’s 1HFY23 net profit of RM15.6m (- 8.4% YoY) achieved 30% of our full year estimate of RM51.7m due  to weaker profit margins in the Engineering and Property Investment  segments. First half revenue grew 74.4% YoY to RM284.4m and was  in line with our expectation after making up 56% of our FY23  revenue forecast. 

Comment

• Mixed segment performance. Despite AME’s overall improvement in revenue, weaker gross profit margins (-3.8% YoY, 7.3% QoQ)  have been recorded due to lower profit margins posted in certain  construction and engineering projects. Segmental profit margins  wise, Construction (+53.6% YoY, -35.7% QoQ) and Engineering (- 71.9% YoY, +200% QoQ) segments have also achieved a mixed  performance due to continued pressures from supply chain  disruptions and labour shortages. Property investment and  management services performed the worst at -85.5% YoY and -87%  QoQ after excluding the disposal gain.

• Inflated Margins. As mentioned above, 2QFY23’s better earnings  are mainly supported by the Group’s disposal of industrial properties  to AME REIT thus driving up margins; EBIT (28.3% YoY, 36.4%  QoQ), PBT (26.9% YoY, 36.4% QoQ), PAT (19.7% YoY, 26.6%  QoQ). 

• Unbilled sales and orderbook remain in good health. The  Group successfully clinched another RM58.2m in new property sales  in 2QFY23, which is 12% lower than the previous quarter. Unbilled  sales grew further to RM122.9m in 2QFY23 from RM120.4m in  1QFY23 while AME’s construction orderbook currently stands at  RM304.2m which was reduced from RM318.7m in 1QFY23.

• Listing of AME REIT. The listing of AME REIT on the main market  of Bursa Malaysia Securities Berhad was successful and completed  on 20 September 2022. We expect AME to utilise their freed-up cash for any future landbanking. 

Earnings Outlook / Revision

• We slash our FY23F core net earnings forecast to RM33.5m from RM51.7m to account for the higher-than-expected fair  value gain. 

Valuation and Recommendation

• Maintain HOLD on AME with a lower target price of  RM1.58 (previously RM1.63). Our target price is pegged at a rolled over FY24F fully-diluted EPS and PE multiple of 20.4x which  is at its 2-year mean PE.  

Source: JF Apex Securities Research - 30 Nov 2022