RHB Investment Bank initiated coverage on AME Elite Consortium Bhd with a buy call and a target price of RM2.22, noting the company’s niche expertise in industrial property development as being “well-positioned.”
“We like AME for its expertise and niche in industrial property development. For now, it is the only industrial property/construction play listed on Bursa Malaysia.”
“Hence, the company is well-positioned to capture the potential influx of foreign investments arising from the ongoing US-China tensions – once economic growth picks up,” said RHB analyst Loong Kok Wen.
The analyst also noted that industrial property development is relatively unaffected by Covid-19 compared to other real estate segments, as it involves direct negotiations with local corporations and multinational firms.
“AME is the go-to contractor for many manufacturers due to its ability to custombuild manufacturing facilities, on top of its established know-how, expertise, and technologies,” said Loong.
The analyst also noted that, though the lockdown in the second quarter of 2020 delayed some negotiations, AME’s deal flows remain largely intact. The industrial segment is also a “bright spot” as the supply of industrial properties in the pipeline is more favourable compared to other sub-segments.
Loong noted that AME’s management is looking to expand outside of Johor, and is considering targeting the mass industrial segment.
“Its flagship industrial parks, under the i-Park brand, are of a standard rarely seen in Malaysia. We think the central region and Penang could be potential sites.”
“It will be an opportunistic expansion strategy, given the lack of gated and guarded industrial parks available in Selangor and Penang, as well as there being a rising demand for quality industrial space in Malaysia,” said Loong.
The analyst pointed out that, apart from development and construction, AME also provides its industrial tenants with worker dormitories, with AME currently having two dormitories and 34 factories. Two more blocks of worker dormitories are under construction as well.
Discounting the dormitories under construction, this formed a recurring income stream that has contributed RM25.6 mil in earnings before interest and tax, making up 32% of AME’s total EBIT in their 2020 financial year.
Loong also noted that AME’s investment property portfolio is worth about RM500 mil, with management planning to grow the portfolio further, potentially listing the assets as a REIT in three years for value-unlocking.
The analyst also believes that AME will see continued earnings momentum moving forward, given it has a construction tender book of RM600 mil.
“Since its listing at end-2019, AME has seen strong growth in both unbilled sales, and its construction and engineering orderbook,” said Loong.
At the end of the morning’s trading, AME’s shares were last done at RM1.71, up 8 sen, with 1.1 million shares traded. – Aug 19, 2020
