INVESTMENT HIGHLIGHTS

• 4QFY17 normalised earnings within estimates at RM54.1m

• Contributions from healthcare services and PROPEL boosted revenue

• Second interim dividend of 5sen and special dividend of 18sen declared

• FY18F earnings forecasts maintained 

• Maintain BUY with an unchanged TP of RM3.09 per share

4QFY17 earnings within expectations. UEM Edgenta’s 4QFY17 normalised earnings – excluding a one-off gain from the disposal of Opus International Consultants (OIC) of RM270.8m, came in at RM54.1m. This brings its FY17 earnings to RM125.1m which is within our full-year earnings estimates at 99.4% but below consensus’ at 85%. Revenue (excluding OIC portion) grew by +31.1%yoy whilst normalised earnings grew by >100%yoy respectively. On a quarterly sequential basis, both revenue and normalised earnings climbed by +28.5% and >100% respectively.

Higher contributions from healthcare services and PROPEL boosted revenue. The higher revenue recorded both year-over-year and quarter-over-quarter was mostly due to improvements in terms of revenue contribution recorded across its business segments. The higher revenue year-over-year during the quarter was mainly attributable to higher contribution from its healthcare service division which recorded an increase in revenue by +RM451.5m (+98% vs FY16) led by AIFS. Meanwhile its infrastructure services under Projek Penyelenggaraan Lebuhraya (PROPEL) also recorded better revenue in FY17 against FY16 of +RM80.6m or an increase by 10.3% mainly driven by higher civil and pavement works carried out on expressways and contribution from projects in Indonesia. In addition, the contribution from its consultancy division has also steadily increased by +10.9% mainly due to the Design and Project Management Work in Sabah and Project Delivery Consultancy Work in Sarawak.

Second interim dividend of 5sen and special dividend of 18sen declared. For the quarter under review, management has declared a second interim dividend of 5sen. Additionally, a special dividend of 18sen was also declared post-disposal of OIC. This brings the total dividend declared to-date to 31sen or 13.2% yield to yesterday’s closing price. Excluding the special dividend, the total dividend declared for FY17 amounts to 13sen or 5.5% yield to yesterday’s closing price.

Earnings forecasts. We are maintaining our FY18F earnings forecasts for now pending its analyst briefing that will be held next week.

Recommendation. Post earnings announcement, we are reiterating our BUY recommendation on UEM Edgenta with an unchanged SOP-based TP of RM3.09. Despite Opus International Consultant (OIC) has ceased to be a part of Edgenta from FY18 onwards, we opine that the prospects for most of Edgenta’s business segments are brighter with less volatility in its earnings. In addition, we note that new acquisitions such as AIFS and KFM are starting to contribute more significantly to the group’s revenue. We are also more positive on its asset consultancy business in Malaysia post-OIC and we opine that higher contribution will come in gradually as it remains focused on delivery of major road and infrastructure projects in both Peninsular and East Malaysia. Furthermore, we opine that the increasing need for more healthcare facilities around the region will bode well for Edgenta’s healthcare services. It will enable Edgenta to grow the healthcare services business organically and tap into underserved niche segments via AIFS which has network across Singapore, Taiwan and Malaysia.

Source: MIDF Research - 21 Feb 2018