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UOB Kay Hian makes 'buy' call on UEM Edgenta

21/04/2021 01:36 PM

KUALA LUMPUR, April 21 -- UOB Kay Hian Securities (M) Sdn Bhd has made a “buy” call on UEM Edgenta Bhd (UEME) on its forecast of 67 per cent compound annual growth rate from 2021 to 2023.

In a research note today, the firm said UEME -- a home-grown tech-enabled solutions company for healthcare and infrastructure services -- would be the prime beneficiary of the economic reopening and healthcare industry growth, being among the major laggards in the market.

“The expectation is underpinned by UEME’s robust orderbook of RM12.2 billion, mainly from its healthcare and infrastructure services divisions, coupled with operational efficiency through its advanced technology integration.

“The growth of the healthcare industry, lifting of the interstate travel ban, growing traction of environmental awareness and rollout of infrastructure projects will act as catalysts to further support UEME’s earnings visibility, for the next three to five years,” UOB Kay Hian said.

The research firm also noted that UEME has a positive growth outlook, backed by its parent company, UEM Group, which is owned by the sovereign wealth fund, Khazanah Nasional.

Coupled with operational efficiency obtained through its advanced technology integration, UEME would have an earning’s visibility for the next three to five years by embracing digitalisation, which among other things, would also drive improved cost efficiencies as outlined under its refreshed “Edgenta of the Future 2025” plan.

UOB Kay Hian noted that interstate travel and traffic flow in major highways in Malaysia had been badly affected by the implementation of the Movement Control Order (MCO) due to the COVID-19 pandemic in 2020.

This had caused financial constraints for the owners of highway infrastructure assets and led to less pavement work and deferment of several infrastructure projects for UEME.

Nonetheless, despite the onset of the COVID-19 pandemic last year, the company managed to secure more than RM1.4 billion worth of new contracts, with about 70 per cent of the contracts coming from the healthcare support services division alone.

Moving forward, UEME has recently stated that it aimed to further boost its orderbook by RM1 billion to RM2 billion per year by cross-selling its services to existing clients while acquiring new ones by expanding its global footprint.

It is believed that efforts are already underway to boost its business presence in the Middle East, especially countries in the Gulf Cooperation Council.

Currently, its international market presence includes Singapore, Indonesia, Taiwan, India and the United Arab Emirates.

“This would support its dividend payout ratio of 70 per cent, which the firm forecast will provide yields of between five per cent to seven per cent for 2021 to 2023, consistent with its dividend policy,” it added. 

UOB Kay Hian further anticipated that the high dividend payout would be backed by UEME’s strong net cash position of RM206.2 million and gross gearing ratio of 0.32 times.

“We maintained UEME target price at RM2.30 per share,” it said.

At 12.30 pm, UEME’s share price stood at RM1.75 with 425,500 shares traded.


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