Edgenta reported 9M21 core PATAMI of RM33.8m (+219% YoY), coming in below both our and consensus full-year projections at 53% and 45%. The negative surprise was due to steeper-than-expected losses in its Asset Consultancy segment and weaker contribution from its Property & Facilities Solutions division. We lower our FY21-23f forecasts slightly by 3-6%, to account for the widening losses in its Asset Consultancy segment and weaker performance from its Property & Facilities Solutions segment. Our TP is subsequently lowered to RM2.23, from RM2.25. Maintain BUY.

Missing estimates. 3Q21 core PATAMI of RM18.7 (+120.9% QoQ, +194.2% YoY), brought 9MFY21 core PATAMI to RM33.8m (+219% YoY), coming in below our and street expectations at 53% and 45% of full year forecast respectively. The underperformance was due to steeper losses for Asset Consultancy and weaker-than expected contribution from Property & Facilities Solutions. Core PATAMI was arrived at after adjusting for net EIs amounting to -RM9.5m (bulk being staff rationalisation cost of -RM9.4m).

Dividend. 3Q21: None (9M21 DPS: None). 3Q20: None. (9M20: None)

QoQ. Revenue grew 6.2%, mainly due to (i) more billable works performed for both its Healthcare Support and Infra Services division, and (ii) new revenue streams stemming from Covid-related business. Despite a mere 7.2% increase in revenue for its Healthcare Support division, PBT jumped by a strong 141%, due to improved profitability (PBT margin: +4.3 ppts). Core PATAMI was up by 121% as a result.

YoY. Revenue from Healthcare Support and Infra Services division rose 12.5% and 36.4% respectively, on the back of new healthcare commercial contracts wins and more pavement works carried out. This has lifted overall revenue by 18.4%. Better profitability from its healthcare commercial contract has also boosted the Healthcare Support segment’s PBT by 138%. With that, core PATAMI was up by 194.2%.

YTD. Revenue recorded an 11% growth, mainly supported its Healthcare Services segment. Delay in staff deployment to East Malaysia for consultancy work has led to the Asset Consultancy division reporting a LBT of -RM14.3m (SPLY: PBT RM5.1m). However, this was mitigated by stronger showing in its Healthcare Support division (due to the same reasons mentioned above), with PBT reporting a 51% growth. All in, core PATAMI was 219% higher YoY.

Outlook. With travel restrictions lifted, Edgenta can now deploy its resources to East Malaysia to carry out Asset Consultancy works that was delayed earlier due to the movement restrictions. The increase in traffic volume would also bode well for the recovery of its Infra Services segment, via more maintenance work required on the highways. Going forward, Edgenta’s profitability is also expected to gradually improve, given its plans to (i) render higher value-added services to Singapore and Taiwan, and (ii) venture into new high growth markets like Saudi Arabia.

Forecast. We lower our FY21-23f earnings by 3-6%, as we factor in the widening losses in its Asset Consultancy segment and weaker performance from its Property & Facilities Solutions segment.

Maintain BUY, TP: RM2.23. Following our earnings adjustment, our SOP-derived TP is marginally lowered to RM2.23 (from RM2.25). Our TP implies a FY21-22 PE of 29.6x and 14.7x. We maintain our BUY rating on Edgenta, as we believe that the worst is over and we are expecting a recovery in most of its business units following the lifting of movement restrictions.

Source: Hong Leong Investment Bank Research - 26 Nov 2021