Edgenta’s 4Q19 core PATMI of RM73.5m (>100% QoQ, -1.5% YoY) brought FY19 core PATMI to RM158.7m (+2.7% YoY). The results were a tad above expectations but below consensus’. The deviation was due to higher revenue received, and Opus turned profitable during the quarter. All divisions recorded growth in revenue (+10.5% YoY) while growth in core PATMI (+2.7%) was partially offset due to increase operational costs (+12.7%). We maintain our forecasts, pending analysts briefing next week. We maintain our BUY call with unchanged TP of RM3.56.

A tad above. 4Q19 core PATMI of RM73.5m (>100% QoQ, -1.5% YoY) brought the FY19 sum to RM158.7m (+2.7% YoY). Core PATMI was reached after adjusting for net EI of RM24.0m on gain on disposal, net loss on foreign exchange and reversal of impairments. The results came in a tad above our expectations at 105.5% but lower than consensus at 90.9%. The slight deviation was due to higher revenue and a turnaround for Opus, during the quarter.

Dividend. Declared a dividend of 8 sen per share bringing FY19 dividends to 14 sen per share (FY18: 14 sen per share) going ex on 22nd April 2020. (68% pay out ratio)

Healthcare. Revenue rose (+12.3% QoQ, +12.2% YoY, +15.0% YTD) especially due to new commercial projects in Singapore and Taiwan. However, PBT fell (-5.2% QoQ, -44.4% YoY, -3.1% YTD) caused by margin compression in Singapore and Taiwan coupled with increasing operational costs in concession business in Malaysia. Looking forward we feel the new contracts secured in Singapore from various tenders for the provision of support services to the re-clustered Ministry of Health of Singapore’s hospitals will continue to drive profit in this segment.

Infrastructure. PROPEL experienced revenue growth (+30.8% QoQ, +5.0% YoY, +3.8% YTD) attributed to increase expressway pavement works undertaken in Malaysia and Indonesia. Similarly, PBT mirrored top line growth, improving (+30.3% YTD). Exceptionally higher in QoQ (+>300%) and YoY (+>100%) due to a portion of a final settlement project in Abu Dhabi (legacy business) received in 4Q19. Following the news on the government not selling off PLUS to the private sector, we feel it bodes well for Edgenta as there were previous concerns that PROPEL might lose its role as the maintenance contractor for the NSE. Furthermore, with the extension of the concession period by 20 years, the company’s tenure as maintenance contractor for NSE should see an extended lifespan.

Consultancy. Opus revenue boost (+24.8% QoQ, +42.9% YoY, +15.6% YTD) was mainly contributed by projects in East Malaysia. PBT of RM6.2m (vs. 4Q19: -RM0.1m, 4Q18: –RM6.8m), brought a turnaround from loss thanks to better margins received. YTD PBT also improved (+25.1%) due to improved margins.

Forecast. Unchanged pending analyst briefing next week.

Maintain BUY, TP: RM3.56. We maintain BUY and unchanged TP RM3.56. The stock remains a good exposure to a stable earnings stream at reasonable valuations trading at FY20-21 PER of 13.7x–13.3x with a dividend yield of 5.1%-5.3%. We like Edgenta for its defensive earnings profile and pivot towards healthcare support services regionally.

Source: Hong Leong Investment Bank Research - 27 Feb 2020