The total asset solutions provider will address liquidity position
UEM Edgenta Bhd ’s exclusion from the FTSE4Good Bursa Malaysia (F4GBM) Index – which has in part contributed to its recent share price decline – may well be a temporary episode, as the total asset solutions provider will take measures to rectify the situation.
According to UEM Edgenta CEO Azmir Merican, the company is already actively looking at various options to address its shortfall so as to reinstate its position in the responsible-investment sphere.
“We are reviewing options to improve our liquidity position so that we could restore the company’s position in the FBM Malaysia Emas Index as well as F4GBM Index,” Azmir tells StarBizWeek in an email reply.
Stressing that group’s underlying business fundamentals and financial strength are unchanged, Azmir says the company is optimistic about its prospects for at least the next two financial years ending Dec 31, 2017, and 2018.
“We expect to achieve better revenue growth this year, supported by the contribution from newly acquired entities,” Azmir explains, pointing to the group’s 80%-owned integrated facilities management services company KFM Holdings Bhd and Singapore-based healthcare facilities manager UEMS Pte Ltd.
“The consultancy business is also expected to improve significantly this year, in addition to the expected positive results from township management services (under our real estate division) which was established in 2016,” he adds.
UEM Edgenta’s shares have rebounded from more than two-year low over the week, as investors take advantage of their beaten-down valuations.
Continuing its streak for the fourth consecutive trading day, the counter gained 13 sen to close at RM2.64 yesterday.
UEM Edgenta’s shares had tumbled on June 22, when it closed at RM2.29, which represented a decline of about 30% from its value in the beginning of the year.
The share price weakness of UEM Edgenta put the counter on a bargain-hunting list, with many investors viewing it as an opportune time to accumulate the stock.
Analysts’ recommendations indicate further upside for UEM Edgenta even after its recent share price rebound.
Hong Leong Investment Bank recommended a “buy” on the counter, with a target price of RM3.34 based on 15 times the 2017 estimated earnings of UEM Edgenta. MIDF Research, on the other hand, has a “neutral” stance on UEM Edgenta, with a target price of RM3.42, which represents a potential upside of about 30% from its current share price.
UEM Edgenta, which provides consultancy, services and solutions to the healthcare, infrastructure, real estate and water sectors, had been one of the constituents of F4GBM Index since June 2016 until it got removed last month following the latest semi-annual review.
This happened in tandem with the company’s exclusion from the FTSE Bursa Malaysia (FBM) Mid 70 Index early last month.
According to Bursa Malaysia, the exclusion of UEM Edgenta from the FBM Mid 70, and consequently, F4GBM indices effective June 19 was due to liquidity filtering.
Under the FTSE Bursa Malaysia Index Series ground rules, any company which does not turnover at least 0.04% of its shares in issue (after the free-float adjustment) based on its median daily trading volume per month for at least eight of the 12 months prior to the semi-annual review will be removed.
But UEM Edgenta was not the only company affected, as the June 2017 semi-annual review also saw Hume Industries Bhd being excluded from the index for the same reason, while EA Technique (M) Bhd , Kuala Lumpur Kepong Bhd and YTL Corp Bhd became new additions to the F4GBM Index.
The exclusion of UEM Edgenta and Hume Industries from the F4GBM Index – which measures the performance of public listed companies demonstrating strong environmental, social and governance practices – coincided with the sharp fall in the share prices of both companies in recent weeks.
Why does F4GBM Index matter?
F4GBM Index is generally used by many ethical fund managers as part of their guidelines for socially responsible investments.
Companies that make it into the index are generally viewed as those with leading corporate responsibility practices.
Even so, companies involved in the manufacturing of tobacco products, weapons systems and components for controversial weapons such as cluster munitions, anti-personnel mines, depleted uranium, chemical/biological and nuclear are not included in the F4GBM Index.
F4GBM Index constituents are drawn from the 200 shortlisted companies on the FTSE Bursa Malaysia EMAS Index and are reviewed in June and December against international benchmarks developed in collaboration with FTSE Russell.
Following the latest semi-annual review, there are now 43 companies in the F4GBM Index.
Amid a challenging economic environment, Azmir notes UEM Edgenta is growing and enhancing the group’s core business offerings in resilient sectors such as healthcare, infrastructure, real estate and water to sustain the group’s positive prospects.
“In addition, there are significant opportunities to cross sell offerings across our different business and geographies, to expand healthcare offerings into new markets, that is, Singapore and Taiwan as well as the Malaysia market,” Azmir points out.
Separately, he notes, the group is also driving efficiency and productivity through various operational initiatives such as performance-based contracting in relation to its infrastructure business, adoption of technology and digitalisation in service delivery, among others. These initiatives are expected to lead to better operational efficiency that could boost the group’s bottom line.
“These operational excellence efforts/initiatives are expected to improve profitability for UEM Edgenta from 2018 onwards,” Azmir says.
Meanwhile, the weakness of oil prices is not expected to have any more downside impact on UEM Edgenta’s bottom line. This is because the group has fully impaired the geomatics business of its Canadian-based subsidiary, Opus Stewart Weir Ltd. The business is the sole operation of the group affected by the downturn in the oil and gas industry.
UEM Edgenta dipped into the red in the second quarter of 2016 as a result of a massive impairment loss on goodwill Opus’ Canadian operations. But the company has since returned to the black.
For the first quarter ended March 31, 2017, UEM Edgenta saw its net profit increase 33% to RM27.3mil from RM20.5mil in the corresponding period last year and its earnings per share rose to 3.28 sen from 2.52 sen.
The group attributed its earnings growth to contributions from its consultancy, healthcare services, real estate services, and infra services divisions.
During the period in review, UEM Edgenta saw its revenue increase 18% to RM769mil from RM651.8mil in the previous corresponding period. The revenue growth was driven by its healthcare services division on higher contribution from its Singapore-based subsidiary Asia Integrated Facility Solutions Pte Ltd.
Meanwhile, although UEM Edgenta’s balance sheet has turned from a net cash to net gearing position, the group remains committed to a dividend payout of up to 70%.
“Our net gearing ratio remains healthy at 0.3 times as at the first quarter of 2017... the company’s dividend policy remains unchanged, which is up to 70% of the group Patanci (profit after tax and non-controlling interest) and we are optimistic in sustaining our dividend payout given that the company is expected to deliver positive results this year,” Azmir argues.