Edgenta’s focus will be on “Edgenta of The Future 2025” by transforming into a technology-enabled solutions company with a focus on Healthcare and Infrastructure. Edgenta aims to digitalize all aspects of their business. Retain our forecasts. We expect a stronger FY21 showing on the back of Edgenta’s healthy order book of RM12.2bn and gradual recovery path post Covid-19 pandemic. We reduce our SOP discount from 25% to 15%; our TP increases to RM2.00 (from RM1.77). Maintain BUY.

We Attended Edgenta’s Briefing Yesterday With the Following Key Takeaways:

Recap. Edgenta reported FY20 results with revenue of RM2.0bn (-15.4% YoY) that brought core PATMI to RM45.5m (-71.3% YoY). The results came in within our expectations but above consensus’. The lower YoY showing in FY20 was mainly due to the Covid-19 pandemic, with FY20 revenue drop (-15.4% YoY) dragged by all segments, except for Healthcare (+9.1%) which was supported by key commercial hospital contracts wins.

Leading revenue contributors. Consistently Healthcare support has been the highest revenue contributor to the group at 61% (+13% YoY) backed by new secured contracts won in Singapore (mega tender) and Taiwan. Thus, healthcare support revenue rose +9.1% (YoY). Going forward, Edgenta will be focussing on digitalizing the healthcare ecosystem of solutions, by accelerating adjacent revenue streams beyond the traditional service offerings.

Infrastructure via PROPEL; is the second largest revenue contributor at 27% (-12% YoY). Despite Edgenta bagging new contracts in FY20 (maintenance of Sarawak State Road Pavement, Pan Borneo Sarawak Highway and Pavement Contract for JKR Selangor), lower revenue (-40% YoY) was seen due to suspension and deferment of works owing to lower nationwide traffic volumes caused by various forms of MCOs. 4Q20 saw some pavement work orders picking up; hence we are optimistic on a continuous gradual recovery in FY21. Furthermore Edgenta would continue to undertake its operational efficiency initiatives as well as attempting to attain further long term growth opportunities in West Malaysia, Indonesia and South East Asia.

Edgenta of The Future 2025. The Group’s new drive would be on Edgenta of The Future 2025 (EoTF 2025), where Edgenta would be positioning into a technology enabled solutions company with a prime focus on Healthcare and Infrastructure. Edgenta is aiming for digitalization in all aspects of their business. As a starting point, first 2 phases would be focussing on (i) Digital healthcare, QuickMed and (ii) Infrastructure, RAMS. Also, cost control and efficiency savings through automation and mechanization is estimated to bring about RM100m of operational cost savings over the next 5 years.

ESG update. On the spotlight of Covid-19, Edgenta’s continuous efforts in helping the nation to combat the pandemic includes: (i) contribution on cloud-based healthcare information system to support National Crisis Preparedness and Response Centre (CPRC), (ii) contribution of 30 Patient Monitoring Systems and Ventilator Machines to MOH and (iii) setting up Hybrid ICU Facility in Hospital Klang.

Outlook. Management’s focus remains on costs rationalisation initiatives and prudent cash flow management. Edgenta has a healthy RM12.2bn of works in hand (end FY20). Edgenta also aims to expand its footprint into high growth markets in Pan Malaysia, South East Asia and Gulf Cooperation Council (GCC).

Forecast. Unchanged as the briefing yielded no major surprises.

Maintain BUY, TP: RM2.00. We believe Edgenta is set for a recovery path in FY21 across all its business segments. We narrow our SOP discount from 25% to 15% and increase our TP from RM2.00 to RM1.77. Maintain BUY.

Source: Hong Leong Investment Bank Research - 8 Mar 2021