KUALA LUMPUR (May 21): UEM Edgenta Bhd's share price tanked as much as 10.89% or 28 sen at RM2.29 at morning trade today, following the company's first-quarter (1Q) earnings missing expectations.

The counter was among the top losers this morning. At 10.50am, the counter traded at RM2.31, down by 10.21% or 26 sen, after some 1.76 million shares were done.

MIDF Research wrote in a note today that UEM Edgenta's 1Q ended March 31, 2020 (1QFY20) net profit of RM11.2 million was below the house's and consensus expectations due to margin compression experienced by its healthcare division.

UEM Edgenta's 1QFY20 core net profit of RM11.2 million accounted for 6.9% and 10% of MIDF Research's and consensus forecasts for 1QFY20, said the research house.

MIDF Research has slashed its earnings estimates downwards by 50.4% and 24.4% for the financial year ending Dec 31, 2020 (FY20) and FY21, respectively.

As such, the research house expects UEM Edgenta to generate annual net profits of RM81.7 million for FY20 and RM128.9 million for FY21. These are significantly lower compared with a full-year net profit of RM181.78 million the company made in FY19.

The downward revisions for earnings assumption were due to higher operating costs and lower revenue from concession and slower revenue recognition following business closures amid the Covid-19 outbreak, according to MIDF Research.

Nonetheless, MIDF Research has maintained a "buy" rating on UEM Edgenta with a slightly higher sum-of-parts target price of RM3.23, from RM3.22 previously.

"We continue to remain positive on Edgenta's long-term prospects as the company operates in a recession-proof business segment," it said.

MIDF Research opined that the drop in earnings during the quarter is temporary in nature due to the implementation of the Movement Control Order by the Malaysian government, which started back in March and it believes its financials will gradually improve as the pandemic measures are slowly eased in the future.

"Notwithstanding the margin compression, all the business segments have performed commendably despite the unprecedented situation that is currently taking place. Furthermore, its fundamentals remain intact with a net cash position and attractive FY21F dividend yield of 4.8%," it added.