INVESTMENT HIGHLIGHTS

• UEM Edgenta’s 2QFY19 earnings grew by +2.8%yoy to RM34.4m

• Revenue grew by +9.0%yoy supported by higher contribution from Healthcare Services and Infra Solutions

• Asset consultancy posted lower revenue and PBT due to completion of projects and lower margins

• FY19-20F earnings estimates maintained for now

• Downgrade to NEUTRAL with an unchanged TP of RM3.28

2QFY19 earnings below expectations. UEM Edgenta Bhd’s (Edgenta) 2QFY19 earnings came in at RM34.4m. This brings it 1HFY19 earnings to RM67.0m which is below ours and consensus’ full-year FY19 earnings estimates at 41.3% and 42.8% respectively. In 2QFY19, revenue grew by +9.0%yoy whilst earnings grew by +2.8%yoy mainly due to higher revenue contribution from across its business segments. On a quarterly sequential basis, both revenue and core earnings grew by +15.4%qoq and +5.2%qoq mainly due to: (i) higher revenue recognition from healthcare services; (ii) improved revenue recognition from infrastructure solutions and; (iii) higher number of property units sold during the quarter.

Asset management driven by new contracts secured under HS. Healthcare services (HS) drove the segment’s performance with a +19.7% and +34.5% increase in revenue and PBT year-over-year respectively primarily from new contracts secured across all regions. This was however; slightly negated by the -13.2%yoy reduction in revenue from the property and facility solutions mainly due to completed projects during the period.

Infrastructure solutions supported by additional works. Segment revenue and PBT of its infrastructure services declined by - 5.2%yoy and -7.0%yoy respectively, mainly due to increase in operational cost under the infra services division. That said, the division has seen higher volume of work done for expressways during the period. Meanwhile, the asset consultancy (AC) division’s revenue and PBT contracted during the period by -2.6%yoy and -24.6%yoy respectively mainly due to completion of projects during the period as well as; lower margins from the current projects.

Earnings forecasts. We made no changes to our FY19-20F earnings estimates at this juncture pending its analyst briefing that will be held next week.

Recommendation. We are downgrading our recommendation on UEM Edgenta to a NEUTRAL (from Buy previously) with an unchanged SOP-based TP of RM3.28 per share. While we remain optimistic on Edgenta’s growth prospect going forward; we opine that all the positives have been priced in at this juncture. Furthermore, we believe that there will be limited room for further share price appreciation going forward as ever since we recommended a BUY on the stock with a TP of RM3.28 back in February (at the price of RM2.84), the share price has gone up to RM3.27 – which translates to more than 15% appreciation in share price ytd.

Source: MIDF Research - 28 Aug 2019