1HFY18 core earnings of RM63.2m (+14% QoQ, +34% YoY) were within our expectations and consensus. All key divisions (healthcare +4%, infra +24% and consultancy +45%) recorded higher PBT YoY. Valuations are undemanding as the stock is merely trading at FY19-20 PER of 12.7-12.9x with a dividend yield of 5.5-%5.4%. Furthermore, given the governments comments on the toll abolishment proposal being rescinded (for now), we feel that the stock offers a fantastic exposure to a stable earnings stream at an undemanding valuation. Reiterate BUY, our SOP based TP of RM2.97 provides as upside of 30.3%.

Within expectations. Edgenta reported 1HFY18 results with revenue of RM1006.9m (+19% QoQ, +9% YoY) and core earnings of RM63.2m (+14% QoQ, +34% YoY). The latter made up 45% of our full year forecast (consensus: 50%) which is within expectations as 2H is historically stronger.

Consultancy. 1H18 consultancy revenue declined -6% YoY, nonetheless PBT improved by 45% YoY due to the low base effect last year resulting from provision of doubtful debts in 1Q17 and better margin composition of ongoing jobs. The review of mega projects by the new administration could impact potential consultancy job flows to Edgenta (via Opus M’sia). Nonetheless, we reiterate that Edgenta still has RM557m in its consultancy orderbook which will be executed over the next 5 years.

Healthcare. The healthcare division saw 1H18 revenue and PBT growth of 3% and 4% YoY on improved contributions from Taiwan and Singapore (via UEMS). QoQ PBT declined by RM6.8m (-24%) due to weaker margins attributed to higher operating costs in Malaysia.

Infrastructure. The infra division (PROPEL) experienced revenue and PBT growth YoY of 14% and 24% in 1H18. This is mainly from higher expressway pavement works undertaken. Furthermore, operationally PROPEL is transforming from its current input (i.e. resource) based model to and outcome based for the road maintenance industry which is expected to enhance cost efficiency and boost margins. This is reflective in the PBT margin expansion of 1.6ppts to 26.4% YoY (1H17: 24.8%).

Dividend. Declared first interim dividend of 6 sen/share yielding 2.6% and going Ex on the 10th October.

Forecast. Unchanged as the Results Were Inline.

Maintain BUY, TP: RM2.97. Valuations are undemanding as the stock is merely trading at FY19-20 PER of 12.7-12.9x with a dividend yield of 5.5-%5.4%. Furthermore, given the governments comments on the toll abolishment proposal being rescinded (for now), we feel that the stock offers a good exposure to a stable earnings stream at an undemanding valuation. Reiterate BUY, our SOP based TP of RM2.97 provides An Upside of 30.3%.

Source: Hong Leong Investment Bank Research - 30 Aug 2018