KUCHING: UEM Edgenta Bhd’s (UEM) consultancy division is expected to remain buoyed by infrastructural jobs in East Malaysia, analysts observed.
“The consultancy division’s revenue and earnings are currently under pressure due to do impending restructuring of work orders as well as high cost incurred in engaging with other parties for its Pan Borneo Sabah project, as the project now falls under the jurisdiction of Jabatan Kerja Raya, Sabah.
“Nevertheless, we opine that this will be cushioned by the Coastal Highway project secured in Sarawak,” said the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) in its briefing note.
“Furthermore, we believe that once the work orders for Pan Borneo Sabah has been sorted, we will see better recognition in terms of both revenue and earnings coming from its consultancy arm,” it added.
On the potential Peninsular Malaysia consultancy projects, MIDF Research said UEM’s management is currently looking into several rail-related projects. However, these are still in early stages.
As for its other division, MIDF Research said healthcare services (HS) division is expected to remain as its major earnings driver going forward.
“As of 1HFY19, HS contributed 50 per cent to UEM’s total revenue and we opine that it will remain as the main revenue and earnings contributor going forward. This is due to the continuous improvement in terms of margins that was observed for its concession segment; attributable to increased efficiency and adoption of technology in managing the hospitals.
“As of 1HFY19, its concession segment recorded a profit after tax (PAT) margin of 11.8 per cent compared with nine per cent in FY18 whilst its commercial segment recorded a PAT margin of 7.6 per cent in 1HFY19 versus 8.5 per cent in FY18.
“The decline in margins for its commercial segment is expected given the stiff competition in the area coupled with higher expenses incurred to acquire new customers.
“Nevertheless, the commercial margin is commendable given the competitive environment it operates in,” it explained.
Under its property and facility solutions (PFS) division, MIDF Research said UEM is looking into diversifying and re-balancing its portfolio of properties under management to include more industrial-based properties.
“These properties include warehouses, factories, refining facilities, and others. This, we opine will be beneficial for Edgenta given that these facilities requires experienced management and in some area; niche expertise to maintain the facilities which will put UEM at an advantage to win these contracts,” it added.
Overall, pending further news flow on new contract wins, it maintained its ‘neutral’ recommendation on UEM at this juncture.
“Though we remain optimistic on UEM’s growth prospect going forward; as mentioned in our recent earnings report we opine that all the positives have been priced in at this juncture. Edgenta’s share price has also risen by more than 15 per cent since our last target price revision which we believe now limits the room for further share price appreciation.
“That said, we remain comforted by the fact that (UEM’s) management is continuously working on improving its service delivery and implementing lean processes in order to drive revenue and expand margins.
“UEM is also quick to realise and react on business ventures that are deemed unfeasible which we opine will assist the company in terms of margin preservation.
“We are also positive on the fact that it continues to leverage on its robust network of technology infrastructure coupled with its proven track record to provide expert facilities management services in both the expressway maintenance as well as; the property management divisions.
“In addition, its balance sheet remains robust at a net cash position and its dividend yield remains decent at 4.4 per cent FY20F,” MIDF Research said.