Results

• AME Elite Consortium Berhad (AME) inked a 3QFY23 core net earnings of RM9.3m, declining -13.1% YoY and -79.7% QoQ while revenue has surged 40.5% YoY and slid -8.9% QoQ due to overall lower revenue in each segment and a fair value gain on investment properties from disposing assets to AME REIT which happened in the previous quarter.

• On par with estimates. The Group’s 9MFY23 revenue and net profit managed to achieve 82.5%/86.9% of our total year estimates after growing +61.8%/+120.9% YoY due to overall higher revenue recognition in the property development, construction, and engineering segment.

• Segment performance softened QoQ. Despite AME’s revenue improving YoY, its QoQ performance shows mixed results. Most segments saw revenue decline QoQ (Construction: -2.5%, Property development: -6.7%, Engineering: -27.6%, Property Investment and Management: +70.4%), while profits are being further dragged on. Margins have been squeezed further in the Property Development segment at -5.7% and Engineering at -3.0% while the other segments remain relatively stable. We foresee a better outlook for these segments as supply chain disruptions lessen, and labour shortages improve while raw material prices stabilize which will help improve the Group’s overall financial performance.

• Sales improve further. The Group managed to grow its new property sales in 9MFY23 to RM324m, which is +147.7% YoY. Unbilled sales also rose to RM273.3m in 9MFY23, which is +174.1% YoY from RM99.7m. Buyers of AME’s industrial properties are mostly MNCs from many countries including the US, UK, China, and Taiwan.

Earnings Outlook/Revision

• Forecast lifted – We raise our FY24F core net earnings forecast by 18.1% at RM60.1m as we forecast higher revenue recognition in FY24 due to the initiation of the development of their new industrial park called the i-TechValley and to continue the Phase 3 development of the i-Park at Senai Airport City.

Valuation & Recommendation

• Upgrade to BUY on AME with a higher target price of RM1.62 (previously RM1.58). Our target price is pegged at FY24F fully diluted EPS and PE multiple of 17.8x which is at its 2-year mean PE as the ongoing conflict between the US and China persists to drive FDI into South East Asia countries and Malaysia is one of the most attractive places to invest in which the Group is also well positioned to benefit from.

Source: JF Apex Securities Research - 27 Feb 2023