Edgenta reported 1Q19 results with revenue of RM515.9m (+12.0% YoY) and core earnings of RM34.7m (+17.0% YoY). The latter made up 23% of ours and 22% of consensus full year forecast. We deem the results to be inline as Edgenta has historically had a stronger 2H. Post earnings revision our SOP derived TP increases to RM3.58 (from RM3.41) as we roll over our DCF valuations for the healthcare and infrastructure segment. The stock remains a good exposure to a stable earnings stream at reasonable valuations trading at FY19-20 PER of 14.9-14.5x with a dividend yield of 4.8%-5.0%. We highlight that the earnings from the infra division is yet to fully reflect the margin accretion of the PBC and we have yet to reflect this in our forecast on account of conservatism. Maintain BUY.

Within expectations. Edgenta reported 1Q19 results with revenue of RM515.9m (+12.0% YoY) and core earnings of RM34.7m (+17.0% YoY). The latter made up 23% of our full year forecast and 22% of consensus. We deem the results to be inline as Edgenta has historically had a stronger 2H.

Consultancy. 1Q19 consultancy revenue of RM35.0m was flattish YoY (+34% QoQ) on consultancy work for East Malaysia projects (coastal roads). QoQ PBT returned back to black (RM1.3m) but declined -84% YoY which is reflective of the overall declining margins of the construction sector nationwide on renegotiated contracts and increased competitive tenders.

Healthcare. The healthcare division continues its revenue growth trajectory (+19% YoY, -1% QoQ) on stronger contributions from Taiwan and Singapore (via UEMS). PBT improved (+19.3% YoY, +4% QoQ) in line with revenue growth and better cost management. Margins were flattish at +12.7% due to operational efficiency gains despite the inflationary cost environment. We understand that revenue growth from the commercial segment is almost double that of the concession segment. On the concession side, growth in FY19 will be boosted by an additional new hospital recently opened in 1Q19 (Women and Children’s Hospital KL). Revenue breakdown of concession vs. commercial as at 1Q19 is at 45:55.

Infrastructure. The infra division (PROPEL) experienced revenue growth YoY of +13% attributed to higher expressway pavement works undertaken whilst PBT was lower (-5% YoY) due to higher sub-contractor costs and costs incurred for the new pavement research centre. PBT margins shed 1.0 ppts to 11.6% (from 12.6% YoY) as a result. Revenues and PBT declined -39% and -43% QoQ due to seasonality.

Forecast. Post release of the annual report our FY19-20 EPS adjusts upwards by 1%-3%. We introduce our FY21 numbers.

Maintain BUY, TP: RM3.58. Post earnings revision our SOP derived TP increases to RM3.58 (from RM3.41) as we roll over our DCF valuations for the healthcare and infrastructure segment. The stock remains a good exposure to a stable earnings stream at reasonable valuations trading at FY19-20 PER of 14.9-14.5x with a dividend yield of 4.8%-5.0%. We highlight that the earnings from the infra division is yet to fully reflect the margin accretion of the PBC and we have yet to reflect this in our forecast on account of conservatism.

Source: Hong Leong Investment Bank Research - 30 May 2019