• Maintain BUY and MYR2.00 TP, 27% upside and c.3% FY24F (Mar) yield. AME Elite Consortium’s 2QFY24 earnings beat expectations. Billings were higher as construction works of existing projects progressed towards the completion stage. We continue to like AME as it is the key industrial play in Iskandar Malaysia, which is benefitting from the rising investment interest from domestic and foreign industrial players.

• 2QFY24 results. The higher sequential revenue was mainly driven by the construction and engineering divisions, as some existing projects progressed to the completion stage. The property investment and management services division saw better growth QoQ due mainly to higher rental generated from additional factory units leased out as well as workers’ dormitories and management services income from industrial park tenants. Meanwhile, net profit was marginally lower QoQ because of a lower share of profit from the JVs and higher cost of sales during the quarter. As such, PBT margin was lower at 16% vs 17.7% in the preceding quarter.

• YoY comparison. Note that earnings were much higher in FY23 as the MYR54.8m fair value gain was recognised as a result of the sale of 10 plots of industrial properties to AME REIT (AMEREIT MK, BUY, TP: MYR1.42) last year.

• Keeping MYR350m sales target. New sales achieved MYR88.5m in 2QFY24 vs MYR46.1m in 1QFY24, bringing 1H total to MYR134.6m. Deal flows in the pipeline remained healthy, and if some deals can be closed on time, we believe AME will be able to reach its MYR350m sales target by end FY24.

• Higher dividend in 2QFY24. Compared to only 1 sen in the same period last year, a 2 sen interim single-tier dividend was declared. Note, the company has a dividend payout policy of at least 20% of net profit (excluding fair value gain on investment properties).

• Forecasts. We raise our FY24F-26F earnings by 7-13%, in view of the strong 1HFY24 earnings, as well as the upcoming demand for industrial properties driven by the influx of foreign direct investments in Iskandar Malaysia. Unbilled sales and outstanding construction & engineering orderbook stood at MYR203.9m and MYR259m vs MYR253.4m and MYR138.3m in 1QFY24.

• Maintain TP. Our TP is based on a 20% discount to RNAV and 2% ESG premium given our ESG score of 3.1 for the company.

Source: RHB Securities Research - 24 Nov 2023