Results

• Edgenta reported 4QFY15 results with revenue of RM895m (-1% YoY, +22% QoQ) and core earnings of RM61m (-23% YoY, -12% QoQ).

• Full year FY15 core earnings amounted to RM214m, flattish YoY (+3%). This is a rather impressive showing considering that Edgenta incurred RM31m MSS cost during the quarter. In deriving core earnings, we have removed (i) net impact of -RM15m related to the acquisition of Stewart Weir (goodwill impairment partially offset by reversal of deferred consideration) and (ii) RM19m receivables impairment in Abu Dhabi incurred last year.

Deviation

• Full year core earnings exceeded our forecast by 20% and consensus by 7%. The stronger than expected results stemmed from (i) lower than expected MSS cost , (ii) positive MI recorded in 4Q and (iii) stronger than expected results from PROPEL which surged in 4Q.

Dividends

• Final dividend of 15 sen declared (FY14: 23 sen which includes 18 sen special dividend).

Highlights

• Slightly hit in Canada and Australia. Opus (asset consultancy) experienced a 5% and 14% decline in revenue and normalised PBT due to (i) weak climate in Canada (O&G related) and Australia (mining slowdown) and (ii) MSS cost.

• Topline growth for PROPEL. PROPEL (infra maintenance) saw revenue growth of 17% due to higher certifications for the North South Expressway 4th lane widening. Normalised PBT however declined by 9% due to MSS cost.

• IFM performing. The Integrated Facilities Management (IFM) division saw flattish revenue (-2% YoY). PBT however, grew by 36% due to (i) better margins under the new concession and higher efficiencies and (ii) lower base in FY14 resulting from higher incineration and transport cost for treatment of healthcare waste in Sabah.

Risks

• Slowdown in consultancy jobs in Australia and Canada.

Forecasts

• Our earnings forecast is unchanged pending takeaways from today’s analyst briefing.

Rating

• Maintain BUY, TP: RM4.32
• The recurring earnings of PROPEL and IFM should provide a steady base while Opus offers growth potential once recovery is seen in Australia and Canada. Its strong net cash positon (RM0.52/share) places Edgenta in a polar position to embark on earnings enhancing acquisitions.

Valuation

• While there are no changes to our estimates, we adjust our TP upwards from RM4.23 to RM4.32 as we update our model for the latest balance sheet items. This implies FY16- 17 P/E of 15.9x and 14.4x respectively.

Source: Hong Leong Investment Bank Research - 1 Mar 2016