Amcorp Properties Bhd (Nov 5, 93.5 sen)

Maintain buy with an unchanged target price (TP) of RM1.53: The company’s half-year period ended Sept 30 (1HFY16)’s net profit exceeded FY15 earnings. Its 1HFY16 headline net profit jumped 218% year-on-year (y-o-y) to RM79 million largely due to higher gains from the disposal of overseas properties and foreign exchange (forex) gains (from the disposal of 4B Merchant Square).

Excluding the forex gain, 1HFY16 core profit of RM55 million was still up 124% y-o-y due to higher gains from the disposal of overseas properties. In the first quarter (1Q) of FY16, AmProp recorded a gain of RM57.5 million following the disposal of 4B Merchant Square in London, compared with only RM16.1 million in property disposal gains in 1HFY15.

1HFY16 core earnings are within expectations and account for 69% of our FY16F (forecast). 2QFY16 headline net profit declined 62% quarter-on-quarter (q-o-q) due to the absence of gains on disposal. At the core profit level, 2QFY16 recorded a loss of RM1.6 million. This is nevertheless small in relation to its future earnings stream from its overseas properties.  

Our core earnings per share (EPS) forecasts over 2015 to 2017 remain intact (2016 expected headline profit adjusted for the forex gain), which implies a three-year EPS compound annual growth rate of 64%.

This exceptionally strong growth would be underpinned by the delivery of its London properties and to a lesser extent its Tokyo redevelopments over FY17 and FY18 expectations.

With about 85% of its earnings coming from overseas developments, AmProp can be described as a niche developer in prime overseas markets.

Trading at a FY17 price-earnings ratio of 5.2 times and at a 41% discount to its sum-of-parts value of RM1.53, its stock remains mis-priced, in our view.

Apart from growth, the attractiveness of AmProp lies in its strong earnings visibility, as well as appealing dividend yields of 5% to 7% over FY16 to FY18. — Affin Hwang Capital, Nov 5

This article first appeared in The Edge Financial Daily, on Nov 6, 2015. Subscribe to The Edge Financial Daily here.

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