News

• Secures contract from MAS. Edgenta’s subsidiary, KFM Holdings has been awarded a RM43m contract from Malaysia Airlines Bhd (MAS) to provide facilities management to the latter. The contract encompasses: (i) comprehensive facilities management (RM33.2m), (ii) hotel management services (RM4.1m), (iii) mailing services (RM1.2m) and others (RM4.4m) over a period of 34 months.

• Related party transaction. KFM is an 80% subsidiary of Edgenta which in turn is 69.1% owned by Khazanah (via UEM Group). As MAS is a wholly owned subsidiary of Khazanah, the contract is deemed as a related party transaction.

Comments

• Within its work scope. Recently acquired KFM (completed in April) is primarily involved in the provision of integrated facilities management which also compliments Edgenta’s existing IFM operations that focuses on hospitals. As such, the contract from MAS fits in well with the overall IFM business of Edgenta.

• Relatively small contract but… Assuming the contract is spread equally over 3 years, this would enhance Edgenta’s IFM division revenue by 3.7-3.9% for FY16-18 or RM14m annually. However, in relation to the Group’s enlarged revenue, the incremental impact is insignificant at 0.5% annually.

• …potential to reap more. Despite the relatively small contract sum, we are positive that Edgenta is actively seeking new stable income streams for its IFM division to fill in the gap left by the reduced stake in its East Malaysia hospital concession. Being a subsidiary of UEM Group (and indirectly Khazanah), we see ample opportunities for Edgenta to tap on the many owned companies by its parent - co for jobs.

Risk

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

Forecasts

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

Rating

Maintain HOLD, TP: RM3.87

Whilst we like Edgenta’s cash flow generating capabilities, the lack of upside catalysts coupled with further impairment risks form Opus Stewart Weir prompts us retain our HOLD rating.

Valuation

• Our SOP based TP of RM3.87 implies FY16-17 P/E of 17x and 14.6x respectively.

Source: Hong Leong Investment Bank Research - 29 Jun 2016