Results

• Edgenta has changed its quarterly reporting format to reflect the 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”. As OIC was only disposed in Dec 2017, we have included its contribution for FY17 for purpose of analysis.
• FY17 core earnings amounted to RM143m (-3% YoY). This core amount includes OIC’s earnings but excludes its gain on disposal (RM275m).

Deviation

• FY17 core earnings were within expectations at 97% of our full year forecast (consensus: 105%).

Dividends

• Following the disposal of OIC, a special dividend of 18 sen was declared (ex: 29 Mar) on top of its 2nd interim dividend of 5 sen (ex: 3 May), bringing total dividend to 23 sen.
• The declared special dividend of 18 sen is higher than our earlier estimate of 8 sen.

Highlights

• Healthcare boost from UEMS. The healthcare division saw revenue and PBT growth of 98% and 108% respectively for FY17, largely attributed to the full year contribution from UEMS which was acquired in Dec 2016.
• Lower margin for RES. While revenue for real estate services (RES) rose 26% YoY, PBT was flat for FY17 due to more competitive pricing for its ongoing projects. FY17 PBT margin contracted from 16.8% to 13.4% YoY.
• Steady growth for infra. The infra division (PROPEL) posted YoY revenue and PBT growth of 10% and 5% for FY17. This was driven by higher works for expressways (mainly NSE), Indonesia projects and MRT2 which was mildly offset lower expressway works in Penang and environmental material testing.
• Disposal of OIC completed. The disposal of OIC to WSP Global for NZD174m was completed in early Dec 2017.

Risks

• Earnings gap from the disposal of OIC.

Forecasts

• Unchanged as the results were inline. Pending the release of its FY17 audited accounts, our FY18-19 forecasts have yet to reflect the disposal of OIC. As an indication, removing the earnings contribution from OIC will likely reduce our FY18-19 earnings by 18.5% and 17% respectively.

???????Rating

Maintain BUY, TP: RM3.23

• The disposal of OIC has strengthened Edgenta’s balance sheet (to net cash) and allows it to focus on its key competencies of facilities and infra management. Shareholders will also be rewarded via the special dividend.

Valuation

• Our SOP based TP is raised slightly from RM3.20 to RM3.23 after adjusting for balance sheet items.

Source: Hong Leong Investment Bank Research - 21 Feb 2018