• Maintain BUY, new TP of MYR1.82 from MYR2.34, 23% upside with 2% FY24F (Mar) yield. AME Elite Consortium, the key industrial play in Iskandar Malaysia, is expected to benefit from rising investments from Singapore under the Johor-Singapore Special Economic Zone (SEZ). In addition to its net cash position, after the REIT listing, the company has a significant war chest for new land acquisitions, which may be another share price catalyst. New land in Mainland Penang should drive growth over the medium term.

• Prime beneficiary of SEZ. We resume coverage on AME. The company is set to benefit from the influx of investments into Iskandar Malaysia. Already, AME is benefiting from US-China trade tensions, as it has been enjoying rising demand from MNCs – especially from the US – in recent years. Some of the recent names that announced their investments in AME’s industrial parks include Insulet Corporation, Oliver Healthcare Packaging, Emhart Bucher Glass and Colorcon Inc (mainly in the healthcare/pharmaceutical and light manufacturing industries). These corporations typically have their regional offices in Singapore, and have set up production plants in Johor, given the close proximity. Potential initiatives under the SEZ should accelerate this trend.

• Significant war chest from REIT listing for future landbanking. AME is currently in a net cash position. It raised MYR287m from listing AME REIT (AMEREIT, BUY, TP: MYR1.40) in Sep 2022. So far, the company has utilised MYR110m to repay loans, and the rest is intended for landbanking activities, with targeted areas being Johor and the Klang Valley. The potential addition of new land, especially in Johor, could be a catalyst as the company has been anchoring the industrial sector in Iskandar Malaysia. Note that AME typically depletes about 20-25 acres of its land on average every year (vs the current landbank of 153 acres excluding Penang land). As such, new land is needed to sustain its long-term growth.

• Current business structure enables asset recycling and release of cash flow. AME’s cash flow and financial positions were strengthened post listing of AME REIT. The current business model would enable efficient asset monetisation when industrial assets and worker dormitories are ready to be injected into the REIT. Hence, funding commitments for working capital and future landbanking will be fairly manageable.

• Valuations. Our FY24-25 earnings forecasts are underpinned by the company’s unbilled sales of MYR253.4m as well as its outstanding construction & engineering orderbook of MYR138.3m. Management has a sales target of MYR350m for FY24 (vs MYR479m achieved in FY23) and AME has raked in MYR46.1m new sales in 1QFY24. Our valuation is based on a 25% discount to RNAV, with a 2% ESG premium applied.

Source: RHB Securities Research - 16 Oct 2023