INVESTMENT HIGHLIGHTS

• 1QFY17 earnings missed estimates despite YoY improvement

• Contributions from KFM and AIFS boosted revenue and PBT

• Opus on a route to recovery

• FY17-18F earnings revised downwards by -25% and -14.7%

• Maintain NEUTRAL with a revised TP of RM3.42 per share

Below expectations. UEM Edgenta’s 1QFY17 earnings excluding minority interests came in at RM27.3m which was below our and consensus’ estimates. Revenue grew by +18%yoy while earnings increased by +33.1%yoy respectively. However, on a quarterly sequential basis, both revenue and earnings were down by -10.3% and -53.3% respectively.

Contributions from KFM and AIFS boosted revenue and PBT. Despite not meeting our and consensus’ earnings estimates this quarter, we note that there were improvements in terms of revenue contribution recorded across its business segments. The higher revenue year-overyear during the quarter was mainly attributable to higher contribution from its healthcare service division which recorded a higher revenue by +RM115.7m (>100% vs 1QFY16) led by AIFS. Meanwhile its real estate services also recorded better revenue in 1QFY17 against 1QFY16 of +RM32.1m or an increase by >100% mainly driven by positive contribution of KFM Holdings Sdn Bhd.

Opus on a route to recovery. After undergoing two rounds of impairments on its Canadian operations Opus Stewart Weir (OSW) last year, Opus Group recorded an increase in revenue contribution by +RM17.8m or +4.9% against the same period last year. This was mainly due to the strengthening of NZD against MYR coupled with higher revenue from its Malaysian operation. We opine that Edgenta’s asset consultancy business is finally recovering from the continuous headwinds last year which was mainly due to the economic volatility in the countries that Opus is operating in. Therefore, we are expecting Opus to at least maintain the current momentum of revenue of about ~RM300-400m per quarter.

Earnings forecasts. As a result of the lower-than-expected earnings, we are revising our FY17-18F earnings downwards by -25% and -14.7% respectively. We were previously expecting more aggressive contributions from the IFM division (Propel).

Source: MIDF Research - 23 May 2017