Edgenta (via its 97.5% subsidiary UEMS) has entered into contracts for the provision of hospital support services, which include housekeeping and portering services to MOHS’s restructured hospitals. The total value of the contracts are RM264m-RM284m. We are positive on the news, as it further solidifies its foothold in Singapore. We increase our FY20-22 forecasts upwards by 3-5% to reflect in the new contracts. Post earnings adjustments, our SOP based TP increases slightly to RM2.63 (from RM2.60). Maintain BUY.

NEWSBREAK

Edgenta (via its 97.5% subsidiary, UEMS) has entered into contracts for the provision of hospital support services, which include housekeeping and portering services, to the Ministry of Health of Singapore’s (MOHS) restructured hospitals.

Total value of the contracts is estimated between RM264.5m to RM284m with the final value subject to actual manpower resources deployed. The duration of the contracts ranges from 2.25 years to 3.25 years, with options to extend for another 3-5 years. Commencement dates of the contracts are between 1 July 2020 to 1 April 2021.

HLIB’s VIEW

Positive on the news. We are positive on the new contracts as it further solidifies its foothold in Singapore on top of its current concession with MOHS. The scope of works (i.e. housekeeping and portering services) are very much within Edgenta’s (i.e. UEMS) core expertise of healthcare support services in Singapore. Note that apart from undertaking work for MOHS, Edgenta also does work for some of the private hospitals in Singapore. Overall, contribution from its healthcare segment (its core focus area) has structurally risen post acquisition of UEMS in 2019; FY16: 29%, FY17: 43%, FY18: 45% and FY19: 47%.

Forecast. For perspective, the contracts make up c.11% of FY19 Group revenue and c.24% of healthcare division revenue. We increase our FY20-22 earnings by 3-5% to include in the new contracts.

Maintain BUY, TP: RM2.63. Post earnings adjustments, our SOP based TP increases to RM2.63 (from RM2.60). Maintain BUY.

Source: Hong Leong Investment Bank Research - 10 Jul 2020