3Q15 core profit grew 33.4% YoY while 9M15 core profit rose 12% YoY to MYR144.6m, in line at 79% of our FY15 forecast. Maintain NEUTRAL and MYR3.44 (2% upside). While we expect the poor outlook for the AC division to persist, we believe the impact would be mitigated by a weak MYR, improved efficiency and stronger performance of the IFM and IS divisions.

Broadly in line. UEM Edgenta’s (Edgenta) 3Q15 core profit grew 86.3% QoQ and 33.4% YoY to MYR69.9m, while 1H15 core profit rose 12% YoY. The strong performance in 3Q15 was driven by the integrated facilities management (IFM) division following the opening of the National Cancer Institute which brought additional revenue stream. The improvement in IFM was also boosted by higher fees under the new concession and better efficiency achieved. The asset consultancy (AC) division rebounded during the quarter despite recording lower revenue as it benefitted from the reduction in workforce at its Australia and Canadian operations. We believe that the strong performance of the AC division was also enhanced by the weak MYR. Contribution from the infrastructure services (IS) division remained stable with a slight improvement led by higher work orders and claimable works during the quarter. The gains were partially offset by the property division which recorded slower sales amidst the sluggish property market.

KFM acquisition. Earlier in the week, Edgenta announced the proposed acquisition of an 80% stake in KFM Holdings for MYR128m. Should the deal go through, KFM could boost the revenue stream of Edgenta’s IFM division. We are neutral on the acquisition given the modest earnings impact at c.6-8% of Edgenta’s profit. Nevertheless, we like the payment structure which constitutes initial cash payment of MYR36m and share payments worth MYR56m. The remaining amount to be paid is subject to KFM’s performance over FY16F-18F.

Forecasts and risks. No changes to forecasts. The key earnings risks are: i) sharp reversal in MYR weakness, ii) a recovery in commodity prices, and iii) capacity constraint at its IFM unit.

Maintain NEUTRAL and SOP-derived MYR3.44 TP given limited upside. The weak MYR could mitigate weaker earnings from its Australia and Canadian divisions. We expect the IFM and IS performance to remain stable, benefitting from contracts awarded by the Ministry of Health and/or PLUS respectively.

A Strong Rebound

Recommendation Chart

Source: RHB Research - 26 Nov 2015