Edgenta announced that it has secured contracts from the MOH Singapore for the provision of hospital support services. A contract award by the MOH Singapore validates our view that Edgenta remains a competitive, competent and trusted partner in delivering services to the public sector. Maintain our BUY call and TP of RM3.58.

NEWSBREAK

Edgenta announced that its subsidiary UEMS Solutions Pte Ltd has secured contracts from the Ministry of Health (MOH) Singapore for the provision of hospital support services (housekeeping and portering services). The contract’s value ranges between RM430.0m-RM540.0m, subject to actual manpower resources deployed over the contracts tenure. The contracts range from 3 to 5 years with an option to extend for another 2 to 5 years. We understand that the contracts are a re-awarding of existing and new jobs as per the Singapore healthcare re-clustering exercise albeit over a longer tenure.

HLIB’s VIEW

We are positive on this contract award, although not surprised, as management has always made clear of their intentions to grow the healthcare segment – domestically and regionally.

We can expect this award to have a positive impact to earnings given the quantum and duration of the award. Most pertinently, a contract award by Singapore’s MOH validates our view that Edgenta remains a competitive, competent and trusted partner in delivering services to the public sector.

We are of the opinion that margins for contract will be at a slight discount relative to its commercial healthcare sector PAT margin (c.8.5%) given the more competitive business environment across the causeway and the longer duration of contracts (previous contract awards by the MOH Singapore c.2-3 years). We understand that this award is a prelude to the ongoing healthcare re-clustering exercise in Singapore and may not be the only award this year.

Forecast. For conservative purposes we do not impute this award into our forecast as it is within the bounds of our forecasted earnings growth from UEMS.

Maintain BUY, TP: RM3.58. Maintain our BUY call and TP of RM3.58. Edgenta remains a good exposure to a stable earnings stream at reasonable valuations trading at FY19-20 PER of 15.8-15.0x with a dividend yield of 4.4%-4.7%. We expect revenue growth from the healthcare support segment to be driven by UEMS as it vies for a larger share of the healthcare support services pie regionally, whilst margin expansion will be driven by gradual transition to performance based contracts in Malaysia (concession).

Source: Hong Leong Investment Bank Research - 5 Jul 2019