Thumbs up for UEM Edgenta’s proposed acquisition of AIFS

KUCHING: Analysts are positive on UEM Edgenta Bhd’s (UEM Edgenta) proposed acquisition of Asia Integrated Facility Solutions Pte Ltd (AIFS) as the group moves to expand its integrated facilities management (IFM) business to Singapore and Taiwan.

UEM Edgenta announced on Monday that its wholly-owned subsidiary Edgenta (Singapore) Pte Ltd had entered into a sale and purchase agreement with Asia IFM Solutions Limited for the proposed acquisition of AIFS which indirectly owns UEMS Pte Ltd (UEMS) for S$185.9 million, equivalent to approximately RM563 million including its net cash.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) was positive on the news of the acquisition as it viewed that the IFM business segment, which is one of UEM Edgenta’s expertise is currently facing headwinds.

“Aside from losing about RM300 million in revenue from its IFM concession business in Sabah and Sarawak, the IFM business is also struggling to secure new contracts with good margins from the local hospitals due to intense competition and slow economic activities.

“However, this acquisition might be the saving grace for the IFM business,” MIDF Research said.

According to MIDF Research, looking at the past three years pro- forma accounts of UEMS appended in the announcement, the acquisition could potentially contribute about RM260 million in revenue.

“Additionally, UEMS has also recently acquired in July 2016, UESC which is another HSS subsidiary in Taiwan with a potential annual contribution of RM35 million,” it said.

Hence, the research arm thought that this acquisition will not only help to offset the loss of UEM Edgenta’s Sabah and Sarawak concession but also gain more business due to a better set of private healthcare sector clientele exposure brought over by UEMS.

“Moreover, the positive outlook and growing demand for healthcare services will definitely bode well for the IFM business,” it added.

On forecasts, MIDF Research made no changes to its FY16F earnings forecasts as the acquisition is expected to only be completed in the fourth quarter of 2016 (4Q16).

However, the research arm has incorporated the potential contribution from the acquisition from FY17F onwards which saw its FY17F earnings lifted by 2.1 per cent to RM222.6 million from RM218.1 million previously.

It noted that this was in line with the projected earnings per share (EPS) growth by the company postacquisition of AIFS.

MIDF Research maintained its ‘neutral’ call with a revised target price sum of parts (SOP)-based RM3.41 per share, from RM3.23 per share previously, on UEM Edgenta, post-acquisition announcement and earnings revision.

“Despite being positive on the news, we remain wary on the increasingly challenging operating environment faced by Opus Group, its main revenue contributor,” the research arm said.

That said, MIDF Research took comfort in the fact that UEM Edgenta continued to possess robust balance sheet with a strong net cash position which the research arm opined will enable the group to be more flexible in terms of engaging in potential new opportunities such as acquisitions that could assist in contributing to its revenue.

The research arm believed the potential re-rating catalyst for UEM Edgenta would be in the form of significantly better quarterly earnings performance, recovery in margins and winning meaningful-sized contracts that could contribute significantly to revenue and earnings.