AmProp’s 9MFY16 net profit more than doubles to RM83.8 mil

Amcorp Properties Bhd (Feb 5, 84 sen)

Maintain buy with a target price (TP) of RM1.53: Amcorp Properties Bhd’s (AmProp) nine months of financial year 2016 (9MFY16) headline net profit more than doubled to RM83.8 million (up 174% year-on-year [y-o-y]). The strong performance was largely attributed to the disposal of older London property investments.

For the financial period, AmProp recognised a gain of RM57 million from the disposal of the 4B Merchant Square in London. This was accompanied by foreign exchange (forex) gains of RM23 million, due to the strengthening of the sterling pound versus the ringgit.

On the whole, results were in line with expectations, notably surpassing our forecast of FY16 net earnings of RM80 million.

We have changed the treatment of forex gains, taking them as part of earnings (previously non-core) as we take the view that these investments were made with the intention for both capital and currency appreciation. This, nevertheless, does not affect our core FY16 earnings and earnings per share (EPS) computations.

The third quarter of FY16 (3QFY16) net earnings slipped 75% sequentially in the absence of property disposal gains during the quarter.

We understand that a penthouse unit from its older Neo Bankside project was booked during the quarter. This unit was sold in October 2015 for £4.8 million.

We conservatively leave our FY16 EPS unchanged, although the results surpassed our forecasts, in case of additional year-end expenses.

With the bulk of FY16 earnings booked and given the high degree of earnings visibility in FY17 and FY18 upon the completion of the Burlington and Campden Hill projects in London, a downside risk looks largely protected.

We continue to forecast a three-year forward EPS compound annual growth rate (CAGR) of 64%, which makes price-earnings ratio (PER) valuations, at five times, stand out.

Maintain “buy” on a sum-of-parts-based 12-month TP of RM1.53. Upside potential lies in a higher-than-expected FY16 dividend yield as our payout ratio of 25% is still beneath the 50% to 85% levels in FY14 and FY15. Key risks include a slowdown in demand for its London and Tokyo properties. — AffinHwang Capital, Feb 5.

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This article first appeared in The Edge Financial Daily, on Feb 11, 2016. Subscribe to The Edge Financial Daily here.