Results

• Edgenta has changed its quarterly reporting format to reflect the impending disposal of OIC. Contribution from OIC is no longer consolidated and its profits are reported as a single line item as “profit from discontinued operations”.

• Given the change in reporting format, we reckon it is best to focus on the cumulative 9M period as the individual 3Q period would not have a like for like QoQ comparison. For the 9M period, core earnings stood at RM93m, decreasing 11% YoY.

Deviation

• 9M core earnings made up 63% of our full year forecast which we deem to be inline in expectations of a traditionally stronger 4Q.

Dividends

• None declared. Usually in 4Q.

Highlights

• Strong boost for healthcare. The healthcare segment saw revenue and PBT growth of 109% and 96% YoY for the 9M period. This robust growth was driven by (i) contribution from UEMS which was acquired in Dec 2016 and (ii) higher variation orders for the government hospital concession.

• Growth for real estate services. For the 9M period, real estate services experienced YoY revenue and PBT growth of 43% and 20% respectively. This was driven by higher and full year contribution from KFM (acquired in April 2016).

• Flat for infra. The infra division (PROPEL) was rather flat for the 9M period with YoY revenue and PBT growth at 6% and -2% respectively. While contribution from Indonesia rose, this was offset by completion of works on a Penang highway and lower environment material testing jobs.

• Disposal of OIC unconditional. The impending disposal of OIC for NZD284m has become unconditional and Edgenta is expected to receive the proceeds within the next week.

Risks

• Earnings shortfall from the impending disposal of OIC.

Forecasts

• Unchanged as the results were inline. Pending the clarity on certain accounts pertaining to OIC, our FY18-19 earnings have yet to reflect the disposal. However, as an indication, removing the earnings contribution form OIC would reduce our FY18-19 forecast by 18% and 17% respectively.

Rating

Maintain BUY, TP: RM3.20

• We are positive on the disposal of OIC as it allows Edgenta to exit its investment at an attractive price, strengthen its balance sheet (to net cash) and focus on its key competencies of facilities and infra management.

Valuation

• Our SOP based TP of RM3.20 implies FY17-18 P/E of 17.9x and 15.4x.

Source: Hong Leong Investment Bank Research - 29 Nov 2017