INVESTMENT HIGHLIGHTS

• 1HFY18 normalised earnings of RM63.0m within estimate

• Contributions from HS, RES and PROPEL boosted revenue

• Interim dividend of 6.0sen declared

• Maintain BUY with an unchanged TP of RM3.26 per share

1HFY18 earnings within expectations. UEM Edgenta Bhd’s (Edgenta) 2QFY18 normalised earnings came in at RM33.4m. This led to 1HFY18 normalised earnings of RM63.0m which came in within our full-year FY18 earnings estimates at 54.8% but below consensus’ at 42.5%. 2QFY18 revenue increased by +7.4%yoy whilst corresponding normalised earnings grew at a faster pace of +35.6%yoy. On a quarterly sequential basis, both revenue and normalised earnings climbed by +18.5%qoq and +13.0%qoq respectively.

Higher contributions from healthcare services. Healthcare services (HS) segment revenue and PBT grew by+3.0%yoy and +4.0%yoy respectively. This was mainly attributable to higher revenue from new contracts in the commercial healthcare services sector in Taiwan and Singapore which saw a +RM13.2m revenue increase led by AIFS.

Infrastructure services supported by additional works. Meanwhile, segment revenue and PBT of its infrastructure services under Projek Penyelenggaraan Lebuhraya (PROPEL) also improved by +13.1%yoy and +35.4%yoy respectively, mainly driven by higher civil and pavement works done for expressways.

Real estate services boosted by new projects. The real estate services (RES) segment revenue and PBT climbed by +31.9%yoy and +72.3%yoy driven by new contracts secured for facilities and township management projects as well as contribution from the new energy performance contracting projects.

Interim dividend of 6.0sen declared. An interim dividend of 6.0sen was declared during the quarter-under-review. This represents a dividend payout ratio of 79% for the 1HFY18 and translates into an annualised dividend yield of 5.3%. Note that Edgenta has recently revised its dividend payout ratio commitment to between 50% and 80% (from previous 70%) of net earnings.

Earnings forecasts. We are maintaining our FY18-19F earnings forecasts at this juncture pending an analyst briefing which is scheduled to be held on the 4th of September 2018.

Recommendation. Post earnings announcement, we are reiterating our BUY recommendation on UEM Edgenta with an unchanged SOP-based TP of RM3.26 per share. We remain optimistic on Edgenta’s growth prospect going forward to be led by AIFS as well as PROPEL where it can leverage on its proven track record in providing expert facilities management services in these segments. We opine that Edgenta will continue to tap on underserved areas in both the healthcare services and facilities management services. These are driven by the increasing number of hospitals in the region as well as increasing awareness in facilities management automation that will eventually lead to cost savings and creating environmental-friendly condition for its clients – which what we believe is the direction going forward.

Share price weakness presents a buying opportunity. Edgenta’s share price has shown weak performance since the beginning of this year. It has been further exacerbated by the outcome of the recent GE14 – which we believe is unjustified. Hence, we view this represents as an opportunity to accumulate the stock given that fundamentals remain resilient and growth prospects across all of its business segments remain strong proven by a commendable 1HFY18 earnings performance and years of proven track record. Furthermore, Edgenta also presents an attractive FY19F dividend yield of 5.3% to yesterday’s closing price.

Source: MIDF Research - 30 Aug 2018