3QFY20 core LATMI of –RM19.8m (-205% QoQ, RM16.8m YoY) brought the 9MFY20 core PATMI to RM10.6m (-87.6% YoY). The results came in below ours and consensus’ expectations at 10%-11% of full-year forecasts. The deviation was due to lower than expected revenue contribution. YTD, all divisions were hurt while core PATMI fell due to lower revenue contribution and higher costs. We reduce our FY20-FY22 forecasts by -57%/-53%/-43% to reflect in lower revenue contribution, impacted by Covid-19. Post earnings adjustments our SOP based TP reduce to RM1.77 (form RM2.63). We downgrade to HOLD (from Buy).

Below expectations. 3QFY20 core LATMI of -RM19.8m (-205% QoQ, RM16.8m YoY) brought the 9MFY20 Core PATMI to RM10.6m (-87.6% YoY). The latter was computed after adding back net EIs of RM45.4m which includes gain on disposal and foreign exchange, provision of impairment and impairment on completed property inventories (biggest chunk, -RM50m). The results came below ours and consensus’ expectations at 10%-11% of full-year forecasts; the deviation was revenue shortfall and higher costs.

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

Healthcare. Healthcare division revenue increased (+9.9% QoQ, +16.2% YoY, +7.5% YTD) thanks to more healthcare support work from commercial contracts secured in Singapore and Taiwan. However PBT dropped (-37.3% QoQ, -39.5% YoY, -52.9% YTD) mainly due to margin contractions experienced by its commercial business in Singapore and Taiwan (stiff price competition for new contracts won), higher operating costs in its Malaysian concession operations (higher Covid-19 related costs; cleaning, sanitization, staff overtime) and higher costs in commercial operations. The resurgence of Covid-19 cases in Malaysia would continue to challenge the concession business in the near term. Meanwhile Edgenta will continue to focus on managing its costs efficiently.

PFS. Property and Facility Solutions division experienced revenue fall (-4.5% QoQ, - 37% YoY, -25% YTD) due to some non-continuing projects (cessation of township management, completion of projects in Malaysia and Dubai) and lower contribution from Energy performance contracting project (EPC). PBT fell (-95% QoQ, -89.8% YoY, - 1.5% YTD) due to lower margins achieved. Edgenta will proactively continue to secure new more projects in

Infrastructure. QoQ, PROPEL saw improvement in revenue (+8.6%) with higher expressway pavement works undertaken after the peak of MCO during the previous quarter. Yet, PBT was hurt (-135%) due to higher operational costs during the quarter. YoY and YTD’s revenue fell -52% and -38.8% respectively with less pavement work done for expressway during MCO period as well as deferment of non-critical projects. PBT mirrored the fall (-138% YoY, -59.1% YTD) due to higher operational costs paired with lesser higher margin works. Looking forward, we are optimistic on gradual recovery of works in hand with continuation of postponed works.

Forecast. We tweak our FY20-22 forecasts downwards by -57%/-53%/-43% to reflect in impact from Covid-19 pandemic of lower revenue and higher costs.

Downgrade to HOLD, TP: RM1.77. Post earnings adjustments, our SOP based TP decreases to RM1.77 (from RM2.63). We downgrade our call to HOLD (from Buy). We reckon the near term operating environment will remain challenging for Edgenta.

Source: Hong Leong Investment Bank Research - 26 Nov 2020