3QFY19 core PATMI of RM16.8m (-52.3% QoQ, +0.6% YoY) brought the 9MFY19 amount to RM85.2m (+6.6% YoY). We deem the results to be within expectations with historically weaker 3Q paired with stronger 4Q. All divisions recorded growth in revenue (+10.7% YoY) while growth in core PATMI (6.6%) was partially offset due to increase operational costs. We maintain our forecasts, and as we roll forward to FY20, our SOP based TP reduces slightly to RM3.56 (from RM3.58). Maintain BUY.

Within expectations. 3QFY19 core PATMI of RM16.8m (-52.3% QoQ, +0.6% YoY) brought the 9MFY19 amount to RM85.2m (+6.6% YoY), accounting for 57% of our full year forecast and 49% of consensus. We deem the results to be inline as Edgenta historically has a weaker 3Q (9MFY17-18: c.60%-58%) paired with historically stronger last quarter (4QFY17-18: c.43%-48%).

Dividend. None declared as dividend is usually payable semi-annually.

Healthcare. QoQ, healthcare division fell slightly (-0.9%) due to lower revenue from Malaysia concession operations. PBT followed the fall by the increase in operational costs (Singapore incurred mobility costs for new hospitals secured). 9MFY19 healthcare revenue of RM823.3m grew (+16.1 YoY) on the back of improved contributions especially from new business secured mainly from Singapore public hospitals while PBT mirrored top line growth (+15.9%). We note that the recent Budget 2020 saw an increase in healthcare allocation of c.6.6% YoY (RM30.6bn) which should bode well for this division moving forward.

Infrastructure. PROPEL experienced revenue growth (+5.0% QoQ, +5.1% YoY, +3.2% YTD) attributed to higher expressway pavement works undertaken. Despite the increase in revenue, PBT was hurt (-35.0% QoQ, -18.4% YoY, -9.7% YTD) by higher operational costs in the quarter. Nevertheless we believe that they are able to renew the concession on Indonesia’s Cikampek-Palimanan toll road in West Java for another 3 years.

Consultancy. Opus revenue improved (+35.3% YoY, +7.5% YTD) mainly due to projects in East Malaysia. Even so, PBT declined (-107.8% YoY, -56.8% YTD) due to higher YTD on lower margin composition of ongoing jobs. Edgenta still has RM446.2m (as at June 2019) in its consultancy order book which will be executed over the next 5-7 years.

Forecast. Unchanged as results were deemed inline.

Maintain BUY, TP: RM3.56. As we roll forward to FY20, our SOP based TP reduces slightly to RM3.56 (from RM3.58); due to marginally lower forecast of consultancy orderbook replenishment. The stock remains a good exposure to a stable earnings stream at reasonable valuations trading at FY20-21 PER of 16.1x–15.6x with a dividend yield of 4.3%-4.5%. We like Edgenta for its defensive earnings profile and pivot towards healthcare support services regionally

Source: Hong Leong Investment Bank Research - 25 Nov 2019