We explore Edgenta’s foray into digital healthcare, which begins with the launch of QuickMed (a digital healthcare platform aimed at digitalising healthcare practices in Malaysia). While we have yet to factor in any financial impact from the digital health ventures for the time being, we raise our FY21/22 earnings forecasts by 52.7/65.5% (amid a low base) to account for earnings recovery in Edgenta’s core businesses. After tweaking our SOP-derived valuation methodology and rolling over our valuation year, our TP rises to RM2.53 from RM2.00. Maintain BUY.

Edgenta’s core business currently involves facilities management for the healthcare and infrastructure sectors, which historically accounted for ~45% and ~35% of revenue over the previous 5 years. With Edgenta’s success in adopting technology in their healthcare support services operations, digital healthcare is the logical next step. In this report, we explore Edgenta’s planned digital healthcare ventures going forward.

QuickMed. QuickMed is a platform launched by Edgenta to help healthcare providers digitise their operations and connect to the internet (i.e. their target user base are healthcare providers). QuickMed’s digital solutions include storage of data on cloud, automation of billing, and more. We reckon Edgenta will need to acquire a sizeable user base before these ventures can be monetised effectively.

Potential longer-term business model. We believe QuickMed will be the start of a comprehensive digital healthcare journey. While it is still unclear what monetisation strategies Edgenta will purse, it may come in a few forms, namely: (i) subscription fees from healthcare providers using the QuickMed platform for operations, (ii) selling medical products to users online, (iii) charging fees for value adding services within the platform such as virtual consultations, (iv) charging referrals fees to clinics that patients find via Edgenta’s platforms, (v) selling membership packages to users, (vi) selling wellness packages to users.

Ideal management team. We are enthusiastic about Edgenta’s appointment of Mr. Syahrunizam Samsudin (Managing Director & CEO) in mid-FY20 given his formidable track record in launching and growing digital ventures. Note that during his time at Touch ‘N Go, Mr. Samsudin successfully launched TNG e-wallet as a JV with Ant Financial (affiliate company of Alibaba) which grew to become the largest e wallet in Malaysia.

Forecasts. As Edgenta’s digital healthcare ventures are still in its infancy, we do not factor in any financial impact from the digital health ventures for the time being. However, we raise our FY21/22 earnings forecasts by 52.7/65.5% (amid a low base) to account for earnings recovery from the Infrastructure services division from road maintenance works pushed back into FY21 from Covid-19 disruptions on operations in FY20.

Maintain BUY. We take this opportunity to roll over our valuation year and tweak our SOP valuation methodology (Figure #6). All in all, our TP rises to RM2.53 from RM2.00. In the shorter term, we reckon the share price will be driven by (i) recovery in the infrastructure services earnings from roadworks pushed back from FY20 (ii) projected FY21 healthy dividend yield of 4.8%.

Source: Hong Leong Investment Bank Research - 10 May 2021