UEM EDGENTA BHD

By MIDF Research Buy (Maintained) Target price: RM3.26 (Unchanged)

REAL estate company UEM Edgenta saw a higher contribution from its healthcare services segment, which is expected to increase with new contracts secured in Taiwan and Singapore.

Despite this, the year-to-date share price performance remains weak, which has been exacerbated by the outcome of the recent 14th General Election.

Analysts, however, believe it is unjustified, given that all of Edgenta’s concession contracts remain intact.

They said this gave an opportunity to accumulate the stock, given that its fundamentals remained resilient and growth prospects across all its business segments are still strong. This is proven by its commendable earnings in the first half of 2018 and years of proven track record.

Profit margins for infrastructure services set to improve further as the management has revealed that it has converted its input-based contract with PLUS Malaysia Bhd to a performance-based contract (PBC) as at Aug 1, 2018.

This entailed an improvement in maintenance deliverables, which would translate into cost savings for both Edgenta and PLUS. While the first phase of PBC has begun last month, the full adoption of PBC will begin in January 2019.

The company is also bullish on the prospects for real estate services, as it has recently secured several contracts for facilities and township management as well as energy performance contracting services for CIMB buildings, Tun Razak Exchange, Medini Iskandar and German-Malaysian Institute.

Analysts are of the opinion that this segment has a big growth potential, given the increasing emphasis on environmental issues such as energy savings and reducing carbon emissions.

Therefore, a reiteration of “buy” is recommended on UEM Edgenta with an unchanged sum-of-parts (SOP)-based total price of RM3.26 per share.

For the company’s healthcare services, MIDF opined that aside from securing new and renewing existing contracts, growth opportunities would come from cross-selling between its commercial and concession healthcare services.

As for the facilities management, increasing awareness in environment preservation and technologically-driven solutions will fuel the demand for this segment, which will eventually lead to cost savings and creating environment-friendly condition for its clients.