Results

• Edgenta reported 4QFY16 results with revenue of RM857m (+18% QoQ, -4% YoY) and core earnings of RM43m (-17% QoQ, -10% YoY). This brings full year FY16 core earnings to RM148m, declining -26% YoY.
• In deriving core earnings, we remove impairment losses amounting to RM111m (incurred in 2Q and 4Q) adjusted for 39% MI. These impairments were related to Opus? Canada and Australia operations via 61% subsidiary OIC.

Deviation

• FY16 core earnings were below expectations at 84% of our full year forecast but within consensus at 100%. Higher than expected cost for IFM was the key reason for the deviation.

Dividends

• DPS of 7 sen was declared, falling by more than half compared to FY15 (15 sen).

Highlights

• Opus weak but recovering. While Opus (asset consultancy) saw flat revenue (-1% YoY) for FY16, core PBT declined -21%. This was due to the drag from Canada (lower O&G activities) and Australia (sluggish economic conditions). Despite the weak results, we think there is a silver lining as Opus saw a recovery in the 2H with PBT at RM70m from RM22m in 1H.
• PROPEL lower on project completion. PROPEL?s FY16 revenue and PBT declined by -14% and -15% respectively attributed to the completion of the North South Expressway 4th lane widening (mid-2015) and Bayan Lepas Expressway (2Q16). While management is positive on the rollout of several road jobs, we sense that the issue of timing gap will continue to persist for FY17.
• IFM hit by high cost. The Integrated Facilities Management (IFM) division experienced a -13% YoY revenue fall for FY16 due to the loss of contribution from East M?sia. PBT on the other hand, fell by a steeper magnitude of -49% due to (i) higher parts replacement and maintenance of bio medical equipment and (ii) higher professional fees related to the acquisition of UEMS.

Risks

• Continued slowdown in Australia and Canada.

Forecasts

• Unchanged pending further updates from today?s analyst briefing. Rating Maintain BUY, TP: RM3.64
• We are cautiously optimistic on the recovery signs shown by Opus in 2H16. That aside, the recent acquisition of UEMS by Edgenta should present the latter with a new earnings stream in this year.

Valuation

• While there are no changes to our earnings forecast, our SOP based TP is reduced from RM3.85 to RM3.64 as we update for the recent balance sheet which has moved from net cash to net debt following the acquisition of UEMS. Our TP implies FY17-18 P/E of 15.5x and 13.7x.

Source: Hong Leong Investment Bank Research - 27 Feb 2017