This article first appeared in The Edge Malaysia Weekly on July 1, 2019 - July 7, 2019

TO increase its growth, UEM Edgenta Bhd is hoping to leverage the huge number of hospitals owned by fellow Khazanah Nasional Bhd-investee company, IHH Healthcare Bhd. But it intends to win the job on merit, just as it did for a number of IHH Healthcare’s hospitals in Singapore, managing director and CEO Datuk Azmir Merican tells The Edge in an exclusive interview.

Despite the national sovereign wealth fund being a major shareholder in both companies, UEM Edgenta is not servicing many of IHH Healthcare’s hospitals, he says.

“We are very aware of the opportunities with IHH Healthcare. We have not done as much with them as we would like to. I’ve spoken to their CEO [Dr Tan See Leng] and, to be clear, we are servicing them in Singapore.

“[In the city state,] we went in via tender just like everybody else and we won the contract because our price was right and we have the right capabilities. So, we do service a couple of IHH Healthcare’s hospitals in Singapore but the value is not high,” says Azmir. 

UEM Edgenta is the country’s largest Bursa Malaysia-listed integrated facilities management (IFM) services provider by market capitalisation. The group claims to be the leader in the hospital support services and infrastructure solutions business in the country.

Azmir says UEM Edgenta would like to build a stronger working relationship with IHH Healthcare in Malaysia by maintaining its hospitals here. In the longer run, it aims to become the latter’s preferred IFM hospital partner in the 12 countries — with a total of 83 hospitals — that it operates in.

IHH Healthcare is one of the largest listed healthcare groups in the world by market capitalisation. It operates 15 hospitals in Malaysia and is in the process of adding two more and some 280 beds to its capacity.

Khazanah is UEM Edgenta’s largest shareholder with a 68.15% stake, held through its wholly-owned subsidiary UEM Group Bhd. The sovereign wealth fund is the second largest shareholder of IHH Healthcare with a 26.05% stake, after Japan’s Mitsui & Co Ltd (32.94%).

UEM Edgenta provides support services to more than 300 hospitals in Malaysia, Singapore, Taiwan and India. The healthcare support services segment is the company’s largest revenue contributor and Azmir says it is expected to remain so, given the group’s expertise in the healthcare asset management business. Moreover, it aims to provide its services to the hospitals in the markets that it operates in that have yet to engage IFM services providers.

In the financial year ended Dec 31, 2018 (FY2018), the healthcare support services segment contributed 45% to UEM Edgenta’s revenue of RM2.17 billion and profit after tax (PAT) of RM155.1 million.

Revenue grew at a healthy compound annual growth rate (CAGR) of 14.3% between FY2014 and FY2018 while PAT increased at a commendable CAGR of 11.3% during the same period.

However, the revenue CAGR was inflated by a big jump in FY2017 when the group acquired Asia Integrated Facility Solutions Pte Ltd. The acquisition, made on Dec 15, 2016, gave UEM Edgenta contracts in Singapore and Taiwan, which now make up almost half of its healthcare support services business.

Taking FY2017 out of the equation, UEM Edgenta’s revenue growth had slowed over the last five years, growing 13.4% year on year in FY2015 and only 3% year on year in FY2018.

Azmir admits that the local IFM industry does not see high growth rates because it has yet to reach maturity in the sense that too many asset owners do not want to spend a lot of money on maintaining their assets optimally.

So, how does UEM Edgenta find growth in a business that is often overlooked by potential clients? According to Azmir, optimising the current maintenance programme is the first way to ensure growth for the company, as is targeting clients that own multiple assets.

“This goes back to how we do things better and faster, with the use of more effective technology and innovation so that we can hold our margins. Secondly is to look at the market in Malaysia to see where the possible growth areas are.

“We are looking at working with clients who understand that preserving and getting the most out of their assets will give them the best value. We look at clients who have multiple assets and work with them to look after their portfolio better.”

For instance, if an IFM company were to manage a group of hospitals, it would lead to cost savings when procuring supplies and services, says Azmir. Managing a group of hospitals would also allow for a more efficient management contract for the client as the facilities would likely have common issues, he continues.

“We also tend to restructure contracts. When we restructure contracts, we restructure the purchasing. We buy in bulk so we can command better value, for example.”

While UEM Edgenta will continue to push for business expansion in the markets it is operating in, Azmir says the group is also looking to expand into new markets in Southeast Asia to generate future growth.

In Singapore, the group plans to focus on the healthcare support services business while in Indonesia, it sees opportunities in the provision of infrastructure solutions such as managing highways and roads, he adds.

On its Singapore experience, Azmir says having an operation in the city state, where it services government buildings and other commercial facilities, has lent credibility to the company.

“With this, you are seen as a very competent operator and it allows you to be recognised in other markets. With the track record in Malaysia and Singapore, we can go in and talk to anyone in Indonesia about highways and road maintenance contracts.

“We have a long-term strategy for Indonesia. We know that to go into the country, we have to have long-term stamina. So, we already have one foot in — we have a good partner that we are talking to that allows us to have a base there.”

UEM Edgenta is the leading infrastructure solutions company in Malaysia, providing maintenance services for the North-South Expressway, East Coast Expressway 2, Penang Bridge and Selangor state roads, among others.

In 2017, the group spread its wings to Indonesia where it maintains the Cikampek-Palimanan toll road, which is part of the newly completed 1,167km Trans-Java toll road.

The infrastructure solutions business is the second largest contributor to UEM Edgenta’s revenue and profit, accounting for 41% of group revenue and 42% of PAT in FY2018.

UEM Edgenta also maintains various commercial and government buildings in Malaysia, Singapore and the United Arab Emirates. These include nine buildings owned by CIMB Group Holdings Bhd in the Klang Valley; the Prime Minister’s Office in Putrajaya; buildings housing Singapore’s Parliament, Treasury and Ministry of Foreign Affairs; the National Design Centre in the city state; and the Wasl District properties in Deira, Dubai.

The group’s property and facilities solutions segment contributed 9% to its revenue and PAT in FY2018.

The Khazanah-owned company got off to an impressive start in the first quarter ended March 31, posting a net profit of RM32.7 million — an increase of 10.5% year on year — on the back of a 12% jump in revenue to RM515.9 million.

The stock was trading at RM2.75 last Thursday, giving the company a market capitalisation of RM2.29 billion. The three research firms that cover UEM Edgenta have “buy” calls on the counter, with an average target price of RM3.42.
 

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