News

• Bio-Med maintenance contract. Edgenta has been awarded a 3-year Bio-Medical Engineering Maintenance Services Contract from Sedafiat worth RM91.8m (RM30.6m p.a.).

Comments

• Getting work from its associate. Sedafiat is a 40% associate of Edgenta which is primarily tasked with undertaking Hospital Support Services (HSS) for Government hospitals in the state of Sabah. Prior to March 2015, this was undertaken solely by Edgenta. However, its stake in the Sabah HSS concession was eventually reduced from 100% to 40% to pave way for local state companies to participate. We are not entirely surprised that Sedafiat has engaged Edgenta to undertake the maintenance of hospital bio-medical equipment given the latter’s vast experience in undertaking such work currently in Northern Peninsular and previously in Sabah and Sarawak.

• Minimal impact to earnings. This maintenance contract falls under Edgenta’s Integrated Facilities Management (IFM) division which is expected to contribute 12% to total Group revenue in FY16. At RM30.6m p.a., this would enhance IFM revenue by 9% for FY16. However, in the bigger scheme of things, the contract would only boost total Group revenue by a meagre 1%.

Risks

• Risks associated with this contract is relatively minimal is it is within Edgenta’s usual scope of IFM work.

Forecasts

• Our earnings forecast is unchanged as the impact from the contract is relatively insignificant.

Rating

• Maintain BUY, TP: RM4.32
• 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 RM4.32 implies FY15-16 P/E of 15.9x and 14.4x respectively.

Source: Hong Leong Investment Bank Research - 22 Mar 2016