We attended Edgenta’s 1Q21 results briefing and came away feeling positive on the group’s prospects going forward. We expect Edgenta’s earnings to be driven by growth in the facilities management space, from (i) winning contracts in international markets and (ii) Covid-19 solutions offerings. Our forecast remains unchanged. Our BUY call and TP of RM2.40 based on SOP valuation methodology remains unchanged.

We attended Edgenta’s 1Q21 results briefing and came away feeling positive on the group’s prospects going forward.

Order book and new contracts secured. Edgenta secured RM410.8m worth of new contracts, with 60% coming from Healthcare Support Services (HSS). We believe that earnings in the medium term will be driven by facilities management (FM) contract wins as the group expects to bid for contracts internationally. In 1Q21 Edgenta’s FM contract wins included Advance Semiconductor Engineering (Taiwan), Jurong Health (Singapore), Emirates Golf Club (Dubai). Edgenta is targeting RM2bn worth of new contracts in FY21.

Digitisation of facilities management (UETrack). UETrack is Edgenta’s business venture of digitising not only their existing facilities management business but also help other facilities managers digitise their operations by providing them “Software as a Service” (SaaS) to better track and manage work orders. This will allow Edgenta to not only bid for outsourced facilities management contracts, but also sell this SaaS to companies that run facilities management in house. In 1Q21, Edgenta won a contract from KLCC (who run facilities management in house) to design and build a command centre that allows them to track workflow and increase efficiencies.

Saudi Arabia venture. Edgenta sees Saudi Arabia as a key market for international expansion given (i) the country’s Vision 2030 aims to develop their healthcare sector with privatisation of government hospitals which could lead to Edgenta winning HSS contracts from private companies seeking to realise operational efficiencies and (ii) majority of the existing facilities management providers in the region lack the digital component of Edgenta’s FM offering. To recap, Edgenta had recently entered into a Memorandum of Business Exploration agreement with Asma Advanced Solutions. Asma is jointly held by PICORP (60%) and Trade House Group (Saudi Arabia) (40%). PICORP are a Malaysian company specialising in environmental solutions with existing operations in Saudi Arabia while Trade House Group are expected to connect Edgenta with local players. Edgenta has identified opportunities worth SAR2.4bn (~RM3bn) in Saudi Arabia.

Covid-19 solutions. Edgenta’s Covid-19 services go beyond sanitisation. The group have outlined a number of solutions to assist the nation’s recovery from the ongoing pandemic. These offerings include (i) RTK-PCR tests screening and processing (ii) Covid-19 Hybrid ICU centres (there are two new hybrid ICUs in Kepala Batas and Melaka) (iii) home quarantine monitoring system with RFID tags (e -bracelets) and patient tracking system amongst others (Figure #2).

Forecast. Unchanged.

Maintain BUY, TP: RM2.40. Despite expected continued weakness in infrastructure services earnings going into 2Q21 from MCO 3.0, we maintain our BUY rating, as we expect the share price to be supported by (i) reasonable valuations of 14.5x forward PE (vs. 10 year average of ~21.5x) (ii) dividend yield of 4.8%. Our TP of RM2.40 based on SOP valuation methodology remains unchanged

Source: Hong Leong Investment Bank Research - 31 May 2021