This article first appeared in The Edge Financial Daily on April 20, 2020

KUALA LUMPUR: Much has been said about the detrimental effects of the Covid-19 pandemic on the economy, be it at the national or global level.

From the looming global recession to the worst economic downturn since the Great Depression — we have heard it all. One thing is for sure: It is unprecedented.

Given its extraordinary nature, what will it take to ride out this storm? What kind of companies are equipped to sail through such troubled waters?

Understandably, investors are banking on companies with strong financials and track records.

One such company is UEM Edgenta Bhd. The infrastructure and healthcare services firm boasts a commendable track record, especially over the last five years.

As at the end of last year, the group had recorded a low gross gearing ratio of 0.33 times, cash and bank balances of RM621 million, and a net cash position of RM101.9 million. 

In terms of growth, the group has chalked up a five-year compound annual growth rate of 13.4% in core revenue and 13.2% in profit after tax.

UEM Edgenta prides itself on being a player in defensive sectors, with earnings visibility reaching up to 2038, thanks to its healthy order book of RM13.2 billion.

These numbers seem to make a good “insurance plan” for the company amid the global crisis. At least investors seem to think so. The firm’s share price has jumped 38.22% to RM2.64 last Friday, from its one-year low of RM1.91 on March 19, a day after the movement control order (MCO) was enforced.

But the question remains: How resilient is UEM Edgenta against the Covid-19 outbreak, which has forced many countries into lockdown and crippled numerous businesses? How much will it impact the company’s bottom line?

“It is still early days and we need time to study the full impact [of Covid-19],” said UEM Edgenta’s outgoing managing director and chief executive officer Datuk Azmir Merican Azmi Merican.

“[It] is not easy to ascertain [the impact] at this [point in] time. [The] entire value chains and economies have been disrupted,” he told The Edge Financial Daily.

Azmir said UEM Edgenta is adopting a cautious outlook this year on the back of increasing operational costs, partial cessation of services and potential delays in securing new projects.

The temporary suspension of services includes those in the non-emergency or non-critical segment of the firm’s infrastructure division, while the rising costs mainly come from additional manpower and personal protective equipment for its employees on the frontline.

“However, [the] financial impact has not been fully ascertained,” he reiterated, adding that the impact may be partially offset by additional reimbursable works and digital systems and solutions.

UEM Edgenta is involved in asset management, where it provides healthcare support services and property and facility solutions. The company also provides infrastructure services, along with asset consultancy under its infrastructure solutions division.

For the financial year ended Dec 31, 2019 (FY19), the group posted a net profit of RM181.78 million, up 22.47% from RM148.43 million for FY18. Revenue for the period grew 10.47% to RM2.41 billion from RM2.18 billion.

Nearly half of the group’s top line was contributed by its healthcare segment in FY19 at 48%, making it the firm’s biggest revenue contributor, followed by the infrastructure division at 38%.

Azmir said the company continues to perform services which are deemed essential for its clients across all divisions and deliver on its contractual obligations in asset consultancy for critical infrastructure projects in East Malaysia and Indonesia.

“This is [a] testament to the defensiveness of our businesses even during the coronavirus (Covid-19) pandemic,” he said.

Pockets of opportunities have also emerged during this virus crisis for the group’s healthcare support as well as property and facility services, he added.

The firm serves over 300 hospitals across Malaysia, Singapore, Taiwan and India. Its services include facilities and biomedical engineering maintenance, waste management, linen and laundry, housekeeping and portering.

“[There will be] additional reimbursable work for repair and maintenance, an increased load for linen and laundry, as well as waste management and ancillary works from Malaysian concession hospitals.

“[We are also] actively exploring opportunities to provide hospital-grade sanitisation and disinfection services to commercial clients. Since the onset of the outbreak, to date, we have cleansed approximately two million square feet of commercial space,” said Azmir.

So far, UEM Edgenta has extended these services to four clients, namely CIMB Group Holdings Bhd, Bank Negara Malaysia, the Johor State New Administrative Centre and the Prime Minister’s Office, involving 18 buildings in total.

“This is on top of UEM Edgenta’s work-in-hand of RM13.2 billion, which will tide the company until 2038. Out of this, RM944 million was contributed by contracts for re-clustered MoH (ministry of health) Singapore hospitals with durations of up to five years and renewal options of up to five years — all of which remain intact,” he added.

On its overseas operations, Azmir said the situation is under control in Singapore and Taiwan, and that the group is focusing on executing contracts with optimal resources.

Prior to the MCO, it was reported that UEM Edgenta would be focusing on expanding its operations in Indonesia for two years until 2021, given its foothold in the neighbouring market through the Cikampek-Palimanan highway maintenance project.

Indonesia is now the worst-hit country by the Covid-19 virus in Southeast Asia, with a death toll of over 8% of the more than 6,500 confirmed cases in the country at press time, according to reports.

Despite this, Azmir said UEM Edgenta had a long-term outlook for the neighbouring country.

“UEM Edgenta’s focus on Indonesia is a mid- to long-term play, where the country’s macroeconomics and political situation remain stable. The needs for healthcare and infrastructure still remain. We will be looking at how the country and its economy recovers from this pandemic,” he added.

In addressing the immediate Covid-19 situation, he said the group is focusing on cash flow management, delivering essential services to support its clients and ensuring its frontline employees’ health and safety are protected.

UEM Edgenta has put together a team of senior management, finance and respective heads of business to work on cash flow and liquidity forecasting, cost optimisation, daily operations and mobilisation of recovery measures.

“In the medium to longer term, [the] focus will be on executing growth strategies that have been put in place,” said Azmir, who will be leaving UEM Edgenta tomorrow.

Azmir, who tendered his resignation in January, will be taking up the group managing director post at Sime Darby Property Bhd on Wednesday.

UEM Edgenta is a 69.1%-owned unit of Khazanah Nasional Bhd, while Sime Darby Property is 44% held by Permodalan Nasional Bhd.