This article first appeared in The Edge Malaysia Weekly on July 17, 2017 - July 23, 2017

IN the three years since a three-way merger resulted in the country’s largest total asset solutions company, the enlarged UEM Edgenta Bhd (formerly known as Faber Group Bhd) has not been idle.

Last year, it acquired two other privately held facilities management outfits for a combined RM690 million. Today, it is focused on lifting its game to stay ahead amid technological disruption. The company is rolling out a new smart building system that enables owners to save 10% to 20% on a typical building’s overall cost.

“A lot of our businesses will be disrupted over the next couple of years,” UEM Edgenta managing director and CEO Azmir Merican tells The Edge. “All frontline businesses will be changed because of technology.”

UEM Edgenta’s smart building system — the Smart Facilities Management Solution — is an application of the Internet of Things (IoT), where computing devices in everyday objects use the internet to send and receive data.  It was developed based on Microsoft’s Azure IoT Hub and Machine Learning tools, following UEM Group Bhd’s partnership with Microsoft Malaysia last March. The system has been deployed and fine-tuned at the group’s headquarters in Menara UEM in Bangsar South City, Kuala Lumpur.

“This is the most sensorised building in the country,” claims Azmir. “We have installed about 4,800 IoT sensors that compile data all the time.”

The data is monitored and analysed to enhance energy efficiency and other functions. Such improvements range from automatically turning off the air conditioning in empty rooms to identifying the optimal positioning of lifts during periods of heavy usage.

Azmir says the system also detects anomalies and is able to flag required maintenance before an actual breakdown occurs.  The rollout makes UEM Edgenta the first mover in the region, he adds. “Nobody (in the region) has the capabilities that we have today in terms of machine learning and building IoT. Anything we do now has to be on a regional level.”

The cost savings would come from lower overall energy cost as well as reduced labour cost as maintenance staff can be deployed more efficiently.

The set-up cost is not prohibitive. “For any building of this size (Menara UEM is 29 storeys high), you can spend just a few hundred thousand ringgit and get most of what you can see (in the monitoring room),” Azmir says.

Already, it is talking to several large corporations that could potentially adopt the smart building system.

The 46-year-old says the company is retrofitting a hospital with the new system for the Ministry of Health in order to optimise energy usage. If successful, the project may be extended to other hospitals.

“Our target cost reduction for hospitals is a minimum of 20%,” Azmir says, adding that the percentage of savings could vary depending on the profile, design and age of the respective hospitals.

Performance-based contracts

UEM Edgenta also plans to move towards performance-based contracting in its infrastructure segment next year.  It will fundamentally change how the company does major contracts.

“[Performance-based contracting] is important because it shifts us away from the thinking that we need to do certain work in a certain way,” says Azmir. “The idea is to get our people on the ground thinking about how to do things better [and more efficiently] so there is continuous improvement and we can make savings,” he says.

UEM Edgenta may introduce the same approach to its other business segments. Azmir says the infrastructure client side is receptive to the idea.  

In April 2014, Faber Group Bhd merged with Opus Group Bhd and Projek Penyelenggaraan Lebuhraya Bhd for RM1.15 billion. Azmir assumed his current post in August the same year.

Last year, UEM Edgenta acquired Singapore-based healthcare facilities manager Asia Integrated Facility Solutions Pte Ltd for S$185.9 million (RM565.2 million) and an 80% stake in KFM Holdings Sdn Bhd, an integrated facilities manager, for RM128 million.

Better margins ahead

The pursuit of technological deployment and a shift in mindset is part of Azmir’s drive for operational excellence, which he expects will boost the group’s earnings going forward. If all goes well, UEM Edgenta may see dividends returning to historical levels in the financial year ending Dec 31, 2017 (FY2017) after a record low in FY2016.

UEM Edgenta paid seven sen per share in dividends last year, compared with 15 sen in FY2015, which was the lowest since the 2014 merger. It maintains a payout policy of up to 70% of net profit, although falling earnings in FY2016 saw the ratio bumped up to 73%.

Last year’s lower earnings were due to heavy impairments totalling RM110.8 million from its Canadian and Australian operations, in addition to RM13.2 million in acquisition expenses. That dragged pre-tax profit down 62.7% year on year to RM113.8 million, as revenue declined 6.1% to RM2.93 billion.

The two acquisitions in 2016 shifted the company from a net cash position to a net gearing of 0.3 times. The additional commitments on top of merger integration costs, for example, will keep expected bottom-line growth more modest in 2017, says Azmir.

In a June 29 note, Hong Leong Investment Bank expects UEM Edgenta’s revenue to grow 17% y-o-y in FY2017, while core earnings per share is forecast to improve to 19.1 sen from 17.8 sen last year. It also expects dividends to increase to 10.5 sen in 2017 and hit 12.2 sen in 2018.

Looking ahead, Azmir expects better profitability and stronger margins from FY2018 onwards as economies of scale from the company’s various initiatives kick in. If all goes according to plan, he says, “all these things will translate into margins efficiency, not just in 2018 but in 2019 and 2020 onwards”.

UEM Edgenta’s share price closed at RM2.56 last Friday , down 25.8% year to date. It slumped to a low of RM2.29 at end-June, retreating as much as 26% across the preceding month after being omitted from the FTSE4Good Bursa Malaysia Index due to liquidity concerns.

Azmir says the company is studying options to address the liquidity concerns, but things are still preliminary. The largest shareholder in UEM Edgenta is UEM Group Bhd with a 68.15% stake, followed by Lembaga Tabung Haji with 4.57%.

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