AME Elite’s deals remain strong amid ongoing pandemic, says RHB Research

RHB Research maintained its buy call on AME Elite Consortium at a new target price of RM2.34 from its previous RM2.22, with a 24% upside and c. 2% yield.

For its second quarter ended June 30, 2020 (2Q20), AME Elite recorded a decreased revenue of RM54.7 mil against RM94.3 mil in 2Q19. Its earnings also halved to RM5.3 mil for 2Q20 versus RM13.1 mil in 2Q19.

However, the buy call was based on how the group’s deal flows remain strong despite the ongoing pandemic.

“Several sizeable deals will likely be sealed in the coming months while management is also busy looking for new land, given the fast depletion of its current landbank,” RHB Research analyst Loong Kok Wen said in a Sept 4 note.

Following a virtual post-result briefing hosted by AME Elite, management indicated that the 10.5-acre land in Plot 108b will be officially signed on Sept 15, 2020. The land sale alone is worth RM27 mil.

“We estimate construction of the factory may be worth another RM60 mil to RM70 mil,” Loong added.

AME Elite is also in discussion with a local E&E player for land and factory construction in i-Park @ SAC 2, with an estimated value of the deal to be possibly higher than RM27 mil.

In view of contract flow, management is confidently raising its property sales target to RM200 mil from RM150 mil.

“Unbilled sales as well as the construction and engineering orderbook should be further lifted from the current RM82.2 mil and RM269.8 mil,” said Loong.

Additionally, Loong noted that the fourth workers’ dormitory is in the pipeline, which will help to sustain long-term growth for the property investment portfolio.

Upon completion in two to three years, the dormitory might reach a total number of beds to about 10,000, while the third dormitory already under construction and slated for completion in Oct 2021.

The existing two dormitories are already contributing around RM35 mil in revenue. However, Loong believes that the landbank acquisition will need to be expedited.

“In view of the speed of the development, we believe AME will have some urgency to expand its landbank soon. The company is now left with 106-acre available land for development, and management admitted that it is exploring some potential JVs for its expansion in the Klang Valley. Meanwhile, landbanking in Johor will be done via acquisition,” she said.

Loong also noted that RHB Research is raising its FY21F earnings for AME Elite by 14% to reflect faster billing ahead.

“About 90% of current unbilled sales and construction and engineering orderbook will likely be realised in FY21F. As such, we raise FY21F earnings by 14% to account for the acceleration of works given the hiccup in progress due to the lockdown,” she added.

As of 11.11am today, AME Elite’s share price increased 0.53% to RM1.90 with a market capitalisation of RM811.5 mil. – Sept 5, 2020

Subscribe and get top news delivered to your Inbox everyday for FREE