Edgenta’s 1Q20 revenue of RM501.9m (-29.5% QoQ, -2.7% YoY) brought core PATMI to RM11.6m (-84.2% QoQ, -64.9% YoY). The results came in below ours and consensus estimates. Healthcare division was impacted by the decline of work done for special projects, additional cost to cater for HSS services and margin compression from the Singapore operations (Revenue: -11% QoQ, +1.3% YoY) (PBT: -52.6% QoQ, -74.6% YoY). We cut FY20-21 forecasts downwards by 35%-11% to reflect the near-term challenges in Healthcare; softer revenue, increase in operating costs. We also updated annual report figures and introduce FY22 numbers. Downgrade to HOLD with a lower TP of RM2.60 (from RM3.56).

Below expectations. Edgenta’s 1Q20 revenue of RM501.9m (-29.5% QoQ, -2.7% YoY) brought core PATMI to RM11.6m (-84.2% QoQ, -64.9% YoY). Core PATMI was reached after adjusting for net EI of -RM0.5m on loss on disposal, net gain on foreign exchange and reversal of impairments. The results came in below ours and consensus expectations at only 7% of full year estimates. The deviation was due to lower than expected revenue and higher than expected operating costs.

Dividend. No Dividend Declared.

Healthcare. Revenue of RM274.5m showed a decrease QoQ (-11.1%) but remained flat YoY (+1.3%). In 1Q20, the decline resulted mainly from the Malaysian operations, with lower work done in hospitals for special projects and reimbursable works. PBT fell to RM8.8m (-52.6% QoQ, -74.6% YoY), mainly due to higher operational cost from the Malaysian HSS operations, coupled with margin compression from the Singapore operations due to aggressive bidding during the Singapore hospitals re-clustering exercise. As Malaysian Healthcare Support Service (HSS) scope is comprehensive in nature, Edgenta had to incur additional cost pertaining to the services (i.e. PPE suits, gloves, linen, sanitisation, etc). This additional cost was a result of more stringent hygiene and safety requirements due to Covid-19. Any reimbursement would need to be subjected to approval and agreement by the MoH, hence it would not occur instantly. Looking ahead, we feel that the coming quarters would still be challenging for Edgenta, and we feel it will subside when Covid-19 cases further lowers. With the decrease in number of new daily Covid-19 cases, we are hopeful that the division would normalise by 3Q20.

PFS. Property and Facility Solutions (PFS) revenue fell to RM33.4m (-39.3% QoQ, - 11.3% YoY) due to slower progress for projects in Malaysia and Dubai and the cessation of township management projects back in 2019. PBT of RM7.7m was a reduction QoQ (-52.7%) that followed the reduction in revenue, while for YoY, PBT improved (+7.4%) thanks to better margins for on-going projects despite lower revenue. Not much can be shared on the new initiation of sanitization works that recently stared (April 2020). To date the contribution is minor, but prospects are good, having already secured a 3m sqft of commercial buildings.

Infrastructure. PROPEL’s revenue of RM167.4m saw a reduction (-43.9% QoQ, - 2.8% YoY) that was mainly due to lower pavement works done, less routine maintenance and traffic management for expressways in Malaysia during the period. We comprehend that this was due to delay in roll-out of certain work orders from PLUS such as pavement works. This resulted in PBT declining to RM14.2m (-80.9% QoQ, -28.9% YoY; caused by a reduction in revenue while costs remained constant. We are still positive on the extension of the NSE concession period by 20 years would bode well for Edgenta in the long run.

Source: Hong Leong Investment Bank Research - 28 May 2020