This article first appeared in The Edge Malaysia Weekly on June 10, 2024 - June 16, 2024
DESPITE investor attention on Johor at the moment, AME Elite Consortium Bhd (KL:AME), a major industrial property developer in the state, will not be embarking on large land-banking exercises there, as it focuses on the design-and-build model rather than mass products.
Speaking to The Edge at the group’s headquarters in Senai, executive director and group CEO Dylan Tan Teck Eng says land banking is given careful consideration at AME Elite, as the holding cost can be a big burden if the land cannot be turned around quickly.
“In a booming market, it’s easy to be tempted to acquire all available land. But during a downturn, you could struggle with excess land bank and high borrowing costs.
“Our typical cycle for developing a sizeable industrial park is around seven years. Right now, our latest park in SILC [Southern Industrial & Logistics Clusters] is going to be completed in a shorter [cycle] because market demand is good,” says Tan.
Nevertheless, AME Elite recently agreed to buy three parcels of freehold land in Kulai, Johor, for RM106.17 million cash. The parcels, measuring 37.5 acres in total, are to be developed into an industrial cluster.
With the acquisition, which is expected to be completed in the third quarter this year, AME Elite’s land bank will increase to 302.2 acres. Interestingly, slightly more than half its land bank is in Penang.
AME Elite diversified out of Johor in August 2022 when it acquired 175.98 acres in Seberang Perai Tengah for RM130 million through a special-purpose vehicle, Suling Hill Development Sdn Bhd, in a joint venture with property developer Majestic Group.
The land in Penang is being developed into an industrial park comprising custom-built industrial properties and fit-for-purpose workers’ dormitories, with a gross development value (GDV) of RM1 billion.
Tan says it has always been AME Elite’s aspiration ever since becoming a public company to go beyond the southern state. In fact, he questions whether the strong demand for industrial properties in Johor now is driven by organic demand or just a reaction to the US-China trade war.
“Johor’s appeal remains strong, but we need to be prudent because the demand is partly due to the ‘China-plus-one’ strategy arising from the trade war between the US and China. If these demands were driven mainly by real organic growth because the world economy is growing strongly, then it’s sustainable.
“But if it’s largely due to the China-plus-one factor, the market will recalibrate once the trade war subsides. Therefore, we have to be cautious to avoid overextending our resources,” he says.
Nevertheless, given the good strategic location in proximity with Singapore, and the general good sentiment surrounding Southeast Asia as a regional growth engine, Johor is still a good investment location for MNCs looking for expansion. “However, the issue we currently face in Johor is that during peak market phases, land prices can become expensive,” says Tan.
In the financial year ended March 31, 2024 (FY2024), AME Elite reported a 8.3% drop in net profit to RM93.1 million, from RM101.56 million in FY2023, although revenue rose 24.5% to RM716.88 million.
This was because fair value gain on investment properties recognised in FY2024 was lower than the year before.
AME Elite’s largest shareholders are Lim Yook Kim and Lee Chai, with 19.16% total shareholding, followed by Kang Ah Chee, with a 18.86% stake. Lim and Lee are brothers-in-law. Of the three, only Lee remains on the board of AME Elite as the group’s managing director.
AME Elite owns 49.62% of Bursa Malaysia-listed AME Real Estate Investment Trust (KL:AMEREIT).
While the group had a lower profit in FY2024, Tan says AME Elite rarely has speculative sales or one-off gains. The sales that it generates are based on real demand from customers, as the industrial properties are developed only after securing a customer.
Nevertheless, its first quarter ending June 30, 2025, should see one-off gains from the sale of 11 plots of freehold land measuring more than 34.91 acres in Pulai, Johor, to Hong Kong-based data centre operator Digital Hyperspace Malaysia Sdn Bhd for RM209.84 million as announced last month.
Johor has been a major beneficiary in the pick-up in foreign investments into Malaysia recently. In 2022, the state was the largest recipient of foreign investments into Malaysia, with RM58.79 billion approved, according to the Malaysian Investment Development Authority (Mida) but slipped behind Penang in 2023, with approved foreign investment of RM31 billion. The northern state received approved foreign investments of RM61.65 billion last year, according to data by Mida.
Indeed, Johor has been the focal point for data centre investments in Malaysia recently. These include the RM20 billion Nvidia data centre announced in December 2023, as well as China-based GDS Holdings Ltd’s RM14.33 billion investments for two data centres in Johor.
In a June 4 report, APEX Securities notes that demand for industrial properties in Johor remains firm, with data centres mushrooming in the state of late and ahead of the more detailed plan announcement of the Johor-Singapore Special Economic Zone (JS-SEZ) development.
The high demand for industrial properties in Johor has caused prices to rise, making it difficult for AME Elite to justify expanding its land bank aggressively. In turn, its share price has not appreciated as much as other developers with exposure to Johor.
Over the last 12 months, AME Elite’s share price has risen only 24% to RM1.67, compared with the tripling in UEM Sunrise Bhd’s (KL:UEMS) share price to RM1.14 as well as Sunway Bhd’s (KL:SUNWAY) 129.9% rally over the period to RM3.54. Notably, both UEM Sunrise and Sunway have a larger land bank in Johor.
Tan says the group’s business model is such that it will not embark on major land-banking expansions; instead, it focuses on pipeline growth.
“Usually, the concern [is over] our land bank. Actually, sometimes, demand is up; sometimes, it’s down. We are not dealing in a commodity, where demand [is different] ... Every day, people have to eat. This is a factory.
“Sometimes, a deal can take a while to negotiate; sometimes, a deal has been negotiated halfway, but [the customer] finds a cheaper place to go to. So, it is very hard for us to tell you, ‘Okay ,this is how it is going to be [going forward].’”
Investor concern about AME Elite could also stem from the fact that the group does not employ its capital effectively. As at March 31, 2024, the group was in a net cash position, with cash and cash equivalents of RM279.74 million, compared with short-term borrowings of RM137.7 million.
Nevertheless, AME Elite still has about RM1.24 billion of effective GDV in its pipeline, with RM831 million arising from its i-TechValley park at SiLC. This figure includes the GDV for the Kulai land that it had just acquired.
“The group’s RM276 million bookings in hand as at 4QFY2024 have since been converted into RM254 million sales in 1QFY2025, with the recent RM210 million land sale deal to Quantum DC (HK) Ltd, a data centre customer.
“Looking ahead, we believe its healthy unbilled property sales of RM227 million and remaining RM184 million construction order book will support earnings over the next two years,” states Phillip Capital in an earnings note on May 31.
Phillip Capital has a “buy” call on AME Elite, with a higher target price of RM2.15, compared with RM2 prior to the announcement of the group’s fourth quarter financial results ended March 31, 2024, and the land sale in Pulai.
The research firm raised its FY2025 estimated earnings by 93% to RM168.2 million after factoring in the land sale gain.
AME Elite is also exploring logistics assets in Johor, says Tan. “I’m looking at the upcoming SEZ developments, which have the potential to attract spillover from Singapore, particularly in the logistics sector, because there is a world of difference between storage costs in Singapore versus in Johor,” he says.
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