Edgenta reported 2QFY19 results with revenue of RM595.4m (-15.4% QoQ, +9.0% YoY) and core earnings of RM35.3m (+6.6% QoQ, +4.8% YoY); this brought 1H19 core earnings of RM68.4m (+8.1% YoY). The latter made up 45.5% of ours and 43.8% of consensus full year forecast. We deem the results to be inline as Edgenta has historically had a stronger 2H. We like Edgenta for its defensive earnings profile and pivot towards healthcare support services regionally. The recent award by Singapore MOH attests to their competency in this field. We can expect more news flow from regional healthcare support services jobs in FY19. Maintain BUY and TP of RM3.58.

Within expectations. Edgenta reported 2QFY19 results with revenue of RM595.4m (-15.4% QoQ, +9.0% YoY) and core earnings of RM35.3m (+6.6% QoQ, +4.8% YoY); this brought 1H19 core earnings of RM68.4m (+8.1% YoY). The latter made up 45.5% of our full year forecast and 43.8% of consensus’s. We deem the results to be inline as Edgenta has historically had a stronger 2H.

Dividend. Declared a dividend of 6.0 sen/share (2Q18: 6 sen/share) going ex on 9th October 2019.

Consultancy. 1H19 consultancy revenue of RM64.6m was flattish YTD (-2%) whilst PBT fell 53% YTD reflective of the overall lacklustre domestic asset consultancy business sentiments which remains subdued. QoQ PBT grew 424% to RM6.6m attributed to the low base in 1Q19 and better margins (+18.8 ppts QoQ) from the Sarawak coastal roads contract they won recently, but declined -25% YoY inline with the above mentioned factors.

Healthcare. The healthcare services division continues its revenue growth trajectory in 1H19 (+20%) primarily due to new contracts secured across all regions whilst PBT mirrored top line growth (YTD +26%). PBT margins improved 0.6ppts YTD to 11.7% vs. 11.1%; a reflection of Edgenta’s initiatives to improve efficiency. QoQ PBT declined 14% due to the lower margins attributed from the newer commercial projects secured most recently (-2 ppts QoQ). Nonetheless on a YoY basis PBT continues to chart tremendous improvements from this segment (+34.0% YoY), outperforming revenue growth on better cost management. Margins saw a marked improvement at +10.7% (+1.1 ppts YoY) due to operational efficiency gains despite the inflationary cost environment.

Infrastructure. The infra division (PROPEL) experienced flattish YTD revenue (+2%) however PBT declined (-6%) due to a higher cost base. Zooming into the numbers QoQ, PBT increased +34% QoQ (-7% YoY) attributed to higher expressway pavement works undertaken during the period under review; we attribute this mainly to timing differences. PBT margins improved +0.7ppts QoQ coming in at 12.3% (vs. 11.6% in 1Q19) due to better cost management and asset deployment, we can attribute this margin improvement to automation initiatives in their SOP, such as the deployment of the automated grass cutter they had acquired last year which substantially reduces man power output per day for that particular job.

Forecast. Unchanged.

Maintain BUY, TP: RM3.58. Maintain our BUY call and TP of RM3.58. The stock remains a good exposure to a stable earnings stream with a dividend yield of 3.9%- 4.1% to match. We like Edgenta for its defensive earnings profile and pivot towards healthcare support services regionally. The award by Singapore MOH attests to their competency in this field. Hold on to your horses as we expect more news flow from regional healthcare support services jobs in FY19.

Source: Hong Leong Investment Bank Research - 28 Aug 2019