KEY INVESTMENT HIGHLIGHTS

• UEM Edgenta’s 2QFY20 normalised earnings dipped by - 32.8%yoy to RM23.1m

• Lower revenue recorded across its business segments following enforcement of MCO

• PBT margin for HS division contracted attributable to higher operating costs resulting in margin compression

• 2HFY20 set for improvement with potential earnings upside coming from HS and IS on additional works done

• FY20-21F earnings estimates maintained for now

• Maintain BUY with an unchanged TP of RM3.23 per share

UEME’s 2QFY20 earnings missed expectation at RM23.1m. UEM Edgenta Berhad’s (Edgenta) reported a net loss of -RM26.9m in 2QFY20. However, its normalized earnings excluding impairment on its property inventory worth RM50.0m came in at RM23.1m. This brings its 1HFY20 earnings to RM34.2m which missed our and consensus’ FY20 expectations at 41.9% and 34.7% respectively. Comparing against 2QFY19, revenue was lower by -24.7% premised on lower contribution from its Malaysian healthcare support (HS) segment. Consequently, earnings also dipped by -32.8%yoy, attributable to the margin compression experienced by its concession healthcare division. Meanwhile on a quarterly sequential basis, revenue contracted by - 10.6%qoq whilst normalized earnings surged by +106.9%qoq respectively. This was primarily attributable to higher revenue from the commercial healthcare division coupled with improved revenue from energy performance contract which started during the quarter under review.

Healthcare Support Services. The segment’s revenue increased marginally by +4.8%yoy driven by higher work orders executed during the quarter in both Singapore and Taiwan. However, this was negated by the lower contribution from the Malaysian operations following the completion of several contracts in FY19. Meanwhile, PBT dipped by - 36.5yoy primarily attributable to increase in costs coming from its Malaysian operation. This was further exacerbated by the intense competition on the commercial healthcare support division especially from the Singapore cluster hospitals arising from the re-clustering exercise. The abovementioned reasons have resulted in PBT margin contracting to 6.5% during the quarter vs 10.7% in 2QFY19.

Property and Facility Solutions. Segment revenue declined by - 22.3%yoy to RM35.5m (from RM45.7m in 2QFY19) attributable the the recent cessation of its township management project JV in Johor with UEM Sunrise and completion projects in Malaysia and Dubai during the quarter. That said, PBT for the division grew by +5.0%yoy which was primarily driven by better margin from its on-going projects. Consequently, PBT margin for the division improved to 16.3% vs 9.2% in 2QFY19 during the quarter

Source: MIDF Research - 27 Aug 2020