2QFY20 core PATMI of RM18.8m (+61.6% QoQ, -46.9% YoY) brought the 1HFY20 amount to RM30.4m (-55.5% YoY). We deem the results to be within expectations after accounting for (i) weaker 1H due to MCO/Covid-19 impact and (ii) a traditionally seasonally stronger 2H, particularly 4Q. YTD, revenue of healthcare division improved slightly (+3.1%) while other divisions fell. We expect 2H to perform better on the back of better performance from more infrastructural works and lower costs. We maintain our forecasts and BUY call with unchanged SOP based TP of RM2.63.

Within expectations. 2QFY20 core PATMI of RM18.8m (+61.6% QoQ, -46.9% YoY) brought the 1HFY20 amount to RM30.4m (-55.5% YoY). Core PATMI was attained after adjusting for net EI of -RM46.2m on gain on disposal (RM3k), net gain on foreign exchange (RM19.3m), net provision of impairment (-RM14.9m) and impairment on completed property inventories (biggest chunk, -RM50m). The results accounted for 30% ours and consensus expectations. We deem the results to be within expectations after accounting for (i) weaker 1H due to MCO/Covid-19 impact and (ii) a traditionally seasonally stronger 2H, particularly 4Q. No dividend was declared.

Healthcare. QoQ, Healthcare division increased slightly (+6% QoQ) due to new commercial projects received. PBT surged much higher (+114.7% QoQ) with lower costs incurred (much inventories were already being stocked up in 1Q and cost savings as a result from continues operational efficiency). 1H20’s revenue grew (+3.1 YoY) on the back of improved contributions from commercial contracts secured in Singapore and Taiwan. However, this was offset by lower contribution from Malaysian Healthcare Support Service (HSS) operations. PBT dropped (-56.9% YoY) due to (i) margin contractions faced in Singapore and Taiwan, (ii) Malaysia’s lower revenue contribution and higher operating costs and (iii) impairments on receivables. With the easing of Covid-19 cases, we expect Malaysian HSS to perform better with normalization of costs (Edgenta had to incur heavier costs due to Covid-19 pandemic with the more stringent hygiene and safety requirements).

PFS. QoQ, Property and Facility Solutions (PFS) revenue improved (+6.3% QoQ) thanks to better contribution from energy performance contracting project which commenced in this quarter. However, PBT saw a reduction (-24.5% QoQ) caused by higher operating costs. 1H20’s revenue decreased (-17.3% YoY) on the back of the cessation of township management projects back in 2019.

Infrastructure. PROPEL’s revenue reduced (-39.8% QoQ, -53.6% YoY, -31.1% YTD) that was mainly due to lower pavement works done, less routine maintenance and traffic management for expressways during MCO. Despite that, QoQ’s PBT rose (+31.4% QoQ) because of lower operating costs as a result of the delay in infrastructure works coupled with cost cutting initiatives. On the other hand, 1H20’s PBT (-29.7% YoY) followed the reduction in revenue. Post MCO/RMCO, we expect more works to flow in. We remain positive on the extension of the NSE concession period by 20 years which would bode well for Edgenta in the long run.

Consultancy. Opus revenue fell (-22.9% QoQ, -30.8% YoY, -27.3% YTD) due to lesser consultancy work done. However, this was followed by higher PBT (+>500% QoQ, +5% YoY, +2.8% YTD), due to one-off foreign exchange gain (RM19.3m). We are optimistic on Opus moving forward, given that many mega infrastructure projects have been planned in Peninsular Malaysia.

Forecast. We maintain our forecasts as results were inline

Maintain BUY, TP: RM2.63. We maintain BUY with unchanged SOP based TP of RM2.63.

Source: Hong Leong Investment Bank Research - 27 Aug 2020