We initiate coverage on A&M with an OUTPERFORM call and TP of RM3.00 based on valuation of 57% discount to its SOP of RM7.00. We like the company for its healthy margins, light balance sheet, strong new sales, earnings growth, and its future catalyst, i.e. Pulau Carey that is set to ride on the potential port development project undertaken by SIME and MMC. We estimate FY17-18E sales growth of 195%-29% while earnings to grow by 33%-30%. Remaining total GDV of RM17.0b with long term visibility of 15-20 years.

A&M’s land banks are mostly located in the Klang Valley (93%) while the remaining is in Melaka and Seremban. In the long term, Pulau Carey would be the main growth driver being the 72% contributor of total remaining GDV. While in the immediate term, its development would be supported by its Klang and Sg. Buloh projects which make up 19% of its total remaining GDV. It also enjoys high project gross margins of 40%-50% thanks to its relatively low land-cost to GDV ratio that ranges between 0.3%-8.8%.

Beneficiary of Pulau Carey play. Pulau Carey is located approximately 70km away from KL City Centre accessible via South Klang Valley Expressway (SKVE) which is approximately an hour’s drive away. The main owner of the Pulau Carey landbank is SIME with c.11,000ha which are mostly plantation landbanks at the moment. Meanwhile, A&M has 1,901.4ac land in Pulau Carey, which currently includes 125.0ac golf-course called Amverton Cove Golf & Island Resort, which has been in operation since year 2013 and is a public golf course. Over the last 2 years, A&M’s Pulau Carey land has been rezoned for residential and commercial purposes from agriculture land status, meaning that their land is immediately developable.

Ramping-up more launches. Going forward, A&M is keen to launch its other projects currently in the pipeline, i.e. Amverton Links, Klang and Amverton Hills, Sg. Buloh. In FY17-18E, the group intends to roll out RM238.6m-RM290.1m worth of launches of which 41%-30% are landed/affordable apartments. This is positive given that the demand for landed residential projects in Klang Valley area remains fairly resilient compared to high-rises.

Light balance sheet allows for a semi build-then-sell model. Currently, the group has a net cash position of RM64.1m with zero borrowings implying that it has very little land holding costs. This allows the group to construct ahead of time RM164.5m (representing completion progress of 68%) out of the RM238.6m worth of planned launches over FY17E which indicates their confidence in the ability to sell their projects. On a positive note, the recognition of sales from these projects would have an immediate and significant impact to its earnings.

Estimates FY17-18E earnings growth of 33%-30% to RM26.7m-RM34.6m. We are expecting its earnings growth to be backed by our estimated sales for FY17-18E of RM111.9m and RM144.1m from its planned launches of RM238.6m and RM290.1m respectively. We believe that our sales estimates are highly achievable given that we have been conservative with our take up rate assumptions of c.50% for its landed residential projects in Sg. Buloh and Klang that are already at an 80% completion stage on plan launch in 2H17.

Initiating coverage with an OUTPERFORM call and TP of RM3.00 based on 57% SoP discount to its SoP of RM7.00 (partial GDV and partial landbank basis). Our applied property RNAV discount of 60% is a tad higher than HUAYANG’s applied discount of 57%. For the small-mid-cap developers within our coverage, the average SOP/RNAV discount applied is at 55% (range of 25%-82%), whereby Greater Klang Valley-based developers discount range is lower at 25%-57% while Johor based developers are higher at 73%-82%. While our TP implies a high FY17-18E PER of 41.0x- 31.6x vs. other small mid cap developers average of 9.1x–7.6x, we also note that its GDV/mkt cap ratio is also high at 26.6x vs. small-mid cap peer’s average of 12.4x. At this juncture, we think that A&M PER may not be the best basis of comparison to peers given its superior earnings growth of 33%- 30% in FY17-18E, coupled with its huge landbank size and exceptionally long visibility of 20-years. Our SOP is also conservative as 36% of its total landbank is value on land rather than project value basis

Source: Kenanga Research - 25 May 2017