AmProp seen to be significantly undervalued

Amcorp Properties Bhd
(Sept 25, 88.5 sen)
Initiate coverage with a target price (TP) of RM1.53: Amcorp Properties (AmProp) is a niche property developer that will likely see its London and Tokyo property projects driving its robust 64% earnings compound annual growth rate (CAGR) over financial year 2015 (FY15) to FY17.

Meanwhile, its recurring income stream both from its investment property, Amcorp Trade Centre, and renewable energy projects in solar and hydro with a combined 16MW, is growing.

At a 2016 price-earnings ratio of 4.9 times, we believe AmProp is significantly undervalued and ripe for a rerating given: (1) its improved earnings profile; (2) upside to valuations on greater stock awareness; and (3) dividend upside potential in view of non-core asset disposal. We initiate coverage with a “buy” call, with an upside potential of 88%.

Since 2009, AmProp has been investing in the London property market, taking advantage of depressed prices and the weak pound sterling, post the global financial crisis. 

From a mere investor, AmProp has ventured into property development, together with strategic partners, with more sizeable projects both in London and Tokyo. Currently, unbilled sales from its London projects amount to a substantial £386 million (RM2.58 billion), or £79 million for AmProp’s portion, set to be recognised over FY17 and FY18.

We believe AmProp’s earnings from FY16 are set for a quantum leap as contribution from its overseas property projects kicks in. We project FY17 and FY18 earnings to jump between 31% and 49% and achieve a three-year core earnings CAGR of 64%. 

For the first quarter of financial year 2016 (1QFY16), AmProp has recorded a net profit of RM57 million, exceeding its full-year FY15 earnings. For FY16, 75% of group earnings will be derived from London, while contribution from overseas projects should jump to 88% to 91% over FY17 and FY18.

We initiate coverage on AmProp with a “buy” rating and a sum-of-parts-derived TP. On the whole, we like AmProp for its: 1) standout three-year earnings CAGR of 64%; 2) attractive valuations at 4.9 times 2016 earnings per share and dividend yield of 4% to 8%; 3) growing recurring income base; 4) potential for disposal of non-core assets; and 5) forward-looking management team. Backed by a cash/share of RM0.49 and management’s active stock buy-back programme, we believe that AmProp is significantly undervalued.