News

• JV with UEM Sunrise. Edgenta has entered into an agreement with sister-co, UEM Sunrise (UEMS) (SELL, TP: RM0.94) to set up a JV for the purpose of offering management services for townships and properties (both stratified and non-stratified). Edgenta will contribute RM2.7m to set up the JV where it will hold a 70% stake while UEMS will fork out the balance RM1.2m (30% stake). UEM Group is the major shareholder of both Edgenta (70.7%) and UEMS (66.1%).

Comments

• Expanding its IFM scope. This JV is not entirely surprising as management previously highlighted that it is exploring several working opportunities within the enlarged UEM Group. By offering management services for townships and properties, this would enable Edgenta to expand its scope of Integrated Facilities Management (IFM) which is currently mainly focused on Government hospitals. Edgenta can also tap on the expertise of soon to be acquired KFM Holdings which has experience in township management.

• Leveraging on sister-co for jobs. UEMS has an outstanding GDV of over RM80bn. This presents Edgenta with significant opportunities to offer its township and property management services. One of the developments that we understand could be a pilot project for Edgenta to undertake management services is UEMS’ township in Nusajaya, Johor.

Risks

• Risks associated with this JV are relatively minimal as: (i) the scope of works is somewhat related to Edgenta’s IFM division; and (ii) it can rely on UEMS for a steady stream of projects.

Forecasts

• No changes given the lack of details to pen down any meaningful contribution to earnings.

Rating

• Maintain BUY, TP: RM4.23
• We continue to like Edgenta as it is back by a stable earnings base coming from PROPEL and hospital IFM. Its net cash status puts it in good position to embark on earnings accretive acquisitions.

Valuation

• Our unchanged SOP based TP of RM4.14 implies FY15-16 P/E of 18.8x and 15.2x respectively.

Source: Hong Leong Investment Bank Research - 1 Dec 2015