UEM Edgenta disposes of 61.2 per cent interest in overseas consultancy asset

KUALA LUMPUR: UEM Edgenta Bhd (UEM Edgenta) has agreed to dispose of its 61.2 per cent equity interest or 90.5 million shares in Opus International Consultants Limited (OIC) for total cash consideration of around RM523.9 million or NZ$167.4 million.

In a press statement on Monday, the group announced that it had entered into a lock-up agreement with WSP Global Inc (WSP) through Opus International (NZ) Ltd (ONZ) to sell its stake in OIC for an offer price of NZ$1.78 plus NZ$0.07 dividend per share.

ONZ is a wholly-owned subsidiary of Opus Group Bhd (OGB) a wholly-owned subsidiary of UEM Edgenta.

This translates to a total valuation of NZ$273.6 million or RM856 million for the entirety of OIC, and a premium of 86.9 per cent to the closing price per OIC share of NZ$0.99 on August 11, 2017 – the last business day prior to the announcement.

Commenting on the proposed disposal, Dato’ Azmir Merican, managing director and chief executive officer of UEM Edgenta, said proceeds from the disposal would be mainly used to pare down debts and reduce its gross gearing from 0.8 fold to 0.4 fold.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), this would result in an estimated cumulative interest savings of about RM14.2 million in the next two financial years for the group.

“It will also provide UEM Edgenta with the financial resources and enable management to focus on driving as well as supporting the organic growth and operational excellence initiatives in our core sectors.

“This spans healthcare, infrastructure and real estate in key markets namely Malaysia, Singapore, Indonesia, Taiwan, India, other South East Asian countries, and the Middle East region,” Azmir added.

Beyond that, the group also guided that it would also be able to draw on the experience and resources of OIC still as a third-party consultant and by extension, WSP’s wide ranging engineering capabilities.

The group will also be retaining its Opus Malaysia operation – OGB.

Overall, initial sentiment to the sale has been positive as MIDF Research has highlighted in a corporate update that the proposed disposal would allow UEM Edgenta to no longer be exposed to OIC’s operations in Canada and Australia which have been hit by soft economies and slowdown in the oil and gas industry for the past two years.

“The revenue and profit coming from OIC have been on a decline and missing earnings estimates since FY15 and having incurred audited loss after tax of NZ$29.9 million or RM86.3 million in FY16.”

Despite the positivity however, the research arm notes the disposal’s impact on UEM Edgenta’s earnings going forward will be significant as OIC effectively makes up 45 per cent of the group’s total revenue.

In the long run, the research arm believes that the closing of the earnings gap left by OIC and the plugging of the concession leakages in Sabah and Sarawak hospitals will be the biggest challenges for the group.

With that said however, they also acknowledge that most of UEM Edgenta’s business segments are beginning to turn around and its new acquisitions are beginning to contribute to its group revenue.

“Due to that, we have reduced our earnings estimates for FY18F by 57 per cent to account for the loss in contribution from OIC and slower recovery in the orderbook of UEM Edgenta’s operating business unit – Projek Penyelenggaraan Lebuhraya Bhd.