INVESTMENT HIGHLIGHTS

• 9MFY18 normalised earnings of RM80.5m within estimates

• Contributions from HS and RES boosted revenue

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

9MFY18 earnings within expectations. UEM Edgenta Bhd’s (Edgenta) 3QFY18 normalised earnings came in at RM17.6m. This lead to 9MFY18 normalised earnings of RM80.5m which came in within our fullyear FY18 earnings estimates at 70.1% but below consensus’ at 54.4%. 3QFY18 revenue was flat, growing only by +1.0%yoy whilst corresponding normalised earnings dropped by -23.4%yoy. On a quarterly sequential basis, both revenue and normalised earnings slumped by -3.3%qoq and -47.4%qoq respectively.

Higher contributions from healthcare services. Healthcare services (HS) segment revenue grew by+10.0%yoy which was mainly attributable to higher revenue contributions from commercial healthcare services sector in Taiwan and Singapore, led by AIFS, which saw a +RM20.5m revenue increase. Additionally, the increase was also due to more works done for healthcare-concession business in Malaysia. However, despite the higher revenue, HS segment’s PBT was down by -9.0%yoy due to weaker margins from stiff competition and increasing operating costs.

Infrastructure services supported by additional works. Meanwhile, segment revenue and PBT of its infrastructure services under Projek Penyelenggaraan Lebuhraya (PROPEL) was flat at -1.5%yoy and - 0.1%yoy respectively, mainly driven by less volume of work done for civil and pavement works for expressways.

Real estate services boosted by new projects. The real estate services (RES) segment revenue and PBT increased by +4.7%yoy driven by new contracts secured for facilities and township management projects as well as contribution from the new energy performance contracting projects. Meanwhile, PBT for the segment was down by - 70.1%yoy despite the increase in revenue.

Earnings forecasts. We are maintaining our FY18-19F earnings forecasts at this juncture.

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, leveraging on their 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, 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.

Source: MIDF Research - 30 Nov 2018