KEY INVESTMENT HIGHLIGHTS

• UEM Edgenta’s 4QFY19 normalised earnings declined marginally by -4.3%yoy to RM64.8m

• Earnings supported by strong revenue contribution from healthcare support and infrastructure services

• Margins remains stable cushioned by strong healthcare concession division

• Current work-in-hand relatively unchanged at RM13.2b

• FY20F earnings estimate maintained

• Upgrade to BUY with an unchanged TP of RM3.22 per share

UEME’s 4QFY19 normalised earnings met expectation at RM64.8m. UEM Edgenta Berhad’s (Edgenta) 4QFY19 reported net profit came in at RM102.6m. However, after excluding a one-off profit from its legacy Abu Dhabi project worth RM32.7m, its normalised earnings came in at RM64.8m. This brings its FY19 cumulative earnings to RM149.1m which is within our and consensus expectations at 97% and 98% respectively. Comparing against 4QFY18, revenue was higher by +10.0% premised on higher contribution from its healthcare support (HS) segment. However, earnings were marginally lower by -4.3%yoy, attributable to the margin compression experienced by its commercial healthcare division. Meanwhile on a quarterly sequential basis, revenue grew by +21.2%qoq whilst earnings surged by +275.0%qoq respectively. This was primarily attributable to improved revenue contribution from across its business segment during the quarter.

Healthcare Support Services. The segment’s revenue increased by +12.2%yoy driven by new contracts secured from across the region throughout the year. Meanwhile, PBT was lower by -44.8yoy primarily attributable to increase in general costs. This was further exacerbated by the intense competition on the commercial healthcare support division especially from the Singapore cluster hospitals. This had also resulted in PBT margin contracting to 6.0% during the quarter vs 12.2% in 4QFY18 owing to compressed margin from the commercial division.

Property and Facility Solutions. Segment revenue was rather flat at RM55.0m when compared against 4QFY18 driven by the new contracts secured in 1HFY19. However, this was offset by lower revenue from facilities and township management projects ended during the year namely the JV with UEM Sunrise on the township management project located in Johor. Additionally, margin for the division surged to 29.5% vs 3.7% in 4QFY18 during the quarter due to a one-off gain from a legacy project in Abu Dhabi.

Source: MIDF Research - 27 Feb 2020