News

• Road maintenance in Selangor. Edgenta announced that its wholly owned subsidiary, PROPEL, has been awarded a RM109.1m contract from the Ministry of Works to maintain state roads in Selangor (Zone 3) for a period of 5 years (Feb 2016 to Jan 2021).

Comments

• Within its core business. This contract win is not entirely surprising as PROPEL’s core business involves the maintenance of roads. It currently maintains over 1,000km of roads including Malaysia’s longest highway, the North South Expressway. Other highways that PROPEL also maintains include the Penang Bridge, NKVE, Federal Highway Route 2, ELITE, Seremban-PD Highway and Malaysia-Singapore 2nd Link.

• Muted contribution. Assuming the RM109.1m contract is equally recognised throughout the 5 years, this would work out to an incremental revenue contribution of RM21.8m annually, which is relatively small. To put things into perspective, RM21.8m makes up only 3% of PROPEL’s FY14 revenue. In the bigger scheme of things, RM21.8m would make up less than 1% of the enlarged Edgenta group’s revenue (FY14).

Risks

• Risks associated with this contract is relatively minimal as it is within PROPEL’s core business.

Forecasts

• No changes given that the impact from the contract is relatively small as previously elaborated.

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 SOP based TP of RM4.23 implies FY15-16 P/E of 19.2x and 15.5x respectively.

Source: Hong Leong Investment Bank Research - 29 Dec 2015