UEM Edgenta Bhd’s earnings growth has been gaining pace over the last three years. The integrated facilities management (IFM) service provider managed to secure many contracts from asset owners during this period.
From FY2017 to FY2019 ended Dec 31, UEM Edgenta achieved a risk-weighted compound annual growth rate of 18%, which led to the group clinching The Edge Billion Ringgit Club award for highest growth in profit after tax over three years in the industrial products and services category.
UEM Edgenta’s net profit ballooned to RM418.2 million in FY2017 from RM80 million the previous year, boosted by a disposal gain of RM274.9 million following the sale of its 61.2% stake in Opus International Consultants Ltd for RM463 million. However, its net profit fell to RM148.4 million in FY2018 before climbing to RM181.8 million in FY2019.
UEM Edgenta specialises in healthcare support, property and facility solutions, infrastructure services and asset consultancy, which includes project management and engineering design capabilities.
Although UEM Edgenta’s business is relatively recession-proof, the company was not spared the impact of the Movement Control Order (MCO) implemented from March to May. In the second quarter ended June 30 (2QFY2020), the group reported a net loss of RM26.9 million, compared with a net profit of RM34.4 million in the previous corresponding quarter.
The company’s earnings were dragged down by net provisions for impairment amounting to RM14.9 million, and impairment on completed property inventories amounting to RM50 million. However, it booked net foreign exchange gains of RM19.3 million.
UEM Edgenta registered a core profit after tax and minority interest (Patmi) of RM18.8 million in 2QFY2020, which brought its core Patmi for 1HFY2020 down 55.5% year on year to RM30.4 million.
Hong Leong Investment Bank Research analyst Farah Diyana Kamaludin deemed the earnings contraction as within expectations, after accounting for the impact of the MCO and a traditionally stronger second half, particularly in the fourth quarter. “We expect 2H2020 to perform better on the back of better performance from more infrastructure works and lower costs,” she says in an Aug 27 report.
The still bullish outlook on UEM Edgenta’s prospects by analysts is partly due to its large order book, which stands at about RM12 billion. In July, the group also secured a contract, worth between RM264.55 million and RM284.02 million, for the provision of healthcare support services to Singapore’s Ministry of Health’s restructured hospitals.
However, MIDF Research analyst Noor Athila Mohd Razali opines that while there is upside potential in terms of earnings for UEM Edgenta, it depends on the availability of funds at one of its biggest clients, the Ministry of Health. “We understand that Edgenta performed additional reimbursable works that did not fall under the scope of its existing healthcare support services concession agreement during the MCO … However, the amount reimbursable will highly depend on the Ministry of Health’s decision and available funds,” she says in the Aug 27 report.
Nevertheless, Athila notes that Edgenta is currently in talks with PLUS Expressways Bhd to recommence its non-critical works, which were deferred during the MCO as less traffic meant less maintenance and fewer upgrading works were required.
Athila has a “buy” call on UEM Edgenta, with a target price of RM3.23. “Additionally, we believe that all of its business segments have performed commendably despite the unprecedented situation that is currently taking place. Furthermore, its fundamentals remain intact with a net cash position and attractive FY2021F dividend yield of 5.6%,” she says.
In addition to the IFM contracts in the healthcare and road transport industries, UEM Edgenta is also looking to bid for the project consultancy job in the upcoming Kuala Lumpur-Singapore high-speed rail as well as the Johor Baru-Singapore Rapid Transit System.