• Keep BUY and DCF-based MYR1.46 TP, 34% upside. UEM Edgenta is expected to record a one-off loss of MYR3.6m following the share purchase agreement (SPA) for the disposal of its entire 51% stake in Faber Sindoori Management Services (FSMS). The group expects to utilise the MYR40m proceeds from disposal to reinvest and accelerate its international expansion strategy. We maintain our earnings estimates pending completion of the transaction. Our TP incorporates a 4% ESG premium.

• Overview of the disposal. UEME entered into an SPA with Apollo Sindoori Hotels Ltd for the disposal of 47,113 shares (entire 51% stake) in FSMS for a sale consideration of MYR40m. Management views the disposal as an opportunity for the group to monetise its investment established in 2007 with an initial cost of MYR6.1m. Post disposal, UEME and Apollo Group will enter into a Memorandum of Business Exploration as an extension of the strategic partnership for both parties to collaborate and continue to introduce innovative solutions to the India healthcare market. As such, management is of the view that the disposal will not affect the group from securing new contract wins in India.

• Use of proceeds. Proceeds from the disposal will allow UEM Edgenta to reinvest and allocate more resources to accelerate its international expansion strategy, as it moves towards realising its Edgenta of The Future 2025 vision. UEME is expected to book MYR3.6m loss on disposal (at pro- forma basis) after factoring capital gains tax and other transaction-related expenses. Management expects the transaction to be completed by end 2022.

• Earnings impact. Post disposal, we expect potential dilution of 5% to our 2022 earnings estimates. Nonetheless, we maintain our earnings estimates pending completion of the transaction. We expect UEME to benefit from the full reopening of the economy, which should see a seasonally stronger 2H22 performance underpinned by higher road maintenance and pavement works from PLUS Expressways on higher road traffic volumes.

• Maintain BUY on UEME with unchanged MYR1.46 TP, which includes a 4% ESG premium to our intrinsic value. Apart from being a key proxy to the reopening of borders, we also like the company for its commitment to a 50- 80% dividend payout, as well as its current bargain valuation. UEME is currently trading at 11x forward P/E, at 1.2SD below its historical mean level.

Source: RHB Research - 10 Nov 2022