UEM Edgenta Bhd
(Feb 21, RM2.54)
Maintain buy with a target price (TP) of RM3.23: UEM Edgenta Bhd has changed its quarterly reporting format to reflect the disposal of Opus International Consultants Ltd (OIC). Contributions from OIC are no longer consolidated and its profits are reported as a single-line item as “profit from discontinued operations”. As OIC was only disposed of in December 2017, we have included its contributions for financial year 2017 (FY17) for the purpose of analysis.

Its FY17 core earnings amounted to RM143 million (-3% year-on-year [y-o-y]). This core amount includes OIC’s earnings but excludes its gain on disposal (RM275 million).

Its FY17 core earnings were within expectations at 97% of our full-year forecast (consensus: 105%). Following the disposal of OIC, a special dividend of 18 sen was declared (ex-date: March 29) on top of its second interim dividend of five sen (ex-date: May 3), bringing its total dividend to 23 sen. The declared special dividend of 18 sen is higher than our earlier estimate of eight sen.

There’s a healthcare boost from the healthcare division, which saw revenue and profit before tax (PBT) growth of 98% and 108% respectively for FY17.

While revenue for real estate services rose 26% y-o-y, PBT was flat for FY17 due to more competitive pricing for its ongoing projects. Its FY17 PBT margin contracted from 16.8% to 13.4% y-o-y.

The infrastructure division posted y-o-y revenue and PBT growth of 10% and 5% for FY17. The disposal of OIC to WSP Global Inc for NZ$174 million was completed in early December 2017. There’s an earnings gap from the disposal of OIC.

Pending the release of its FY17 audited accounts, our FY18 to FY19 forecasts have yet to reflect the disposal of OIC. As an indication, removing the earnings contribution from OIC will likely reduce our FY18 to FY19 earnings forecasts by 18.5% and 17% respectively.

The disposal of OIC has strengthened UEM Edgenta’s balance sheet (to net cash) and allows it to focus on its key competencies of facilities and infrastructure management.

Shareholders will also be rewarded via a special dividend. Our sum-of-parts-based TP is raised slightly from RM3.20 to RM3.23 after adjusting for balance-sheet items. — Hong Leong Investment Bank Research, Feb 21