PETALING JAYA: Shares in UEM Edgenta Bhd fell 5.8% yesterday, the sharpest one-day decline in a year after analysts had forecast slower earnings for the company.
Edgenta closed at RM3.40 yesterday and the counter was among the Top 10 losers on Bursa Malaysia.
Hong Leong Investment Bank (HLIB) had cut Edgenta’s earnings for FY16, FY17 and FY18 by 9%, 8% and 4% respectively on an expectation of slower recovery in asset management division, namely Opus, in Canada and Australia and timing gap for projects at road and highway maintenance works segment.
“Profit before tax margins for Opus (asset consultancy division) were razor thin at 0.8% in the first quarter due to the continued drag in Canada and Australia.
“Despite the rebound in oil prices, management highlighted that geotechnical surveys on the Trans Canada Pipeline has yet to see a significant pick up in work activity,” HLIB said in a note yesterday.
“While the outlook in Australia remains weak, the management feels this may have bottomed out but guidance on an outright recovery is uncertain.”
HLIB said that the Edgenta’s management did not rule out another round of impairment this year if the condition at its Canadian subsidiary Opus Stewart Weir (OSW) does not improve.
In FY15, Edgenta took a RM36mil goodwill impairment on OSW, bringing the goodwill attributed to OSW to RM127mil.
HLIB had downgraded its rating on Edgenta with a “hold” call from a “buy”.
“While we like Edgenta’s cash flow generating capabilities, the lack of upside catalysts coupled with further impairment risks prompts us to downgrade our rating,” the research house said.
HLIB said in the research note that Edgenta was eyeing works related to the Pan Borneo Highway (PBH), which its parent company UEM Group was appointed as the project delivery partner for the Sabah portion of the highway.
“The PBH rollout is much needed to fill in the project gaps at Projek Penyelenggaraan Lebuhraya Bhd following the completion of the North South Expressway fourth lane widening in July last year,” it said.
However, the it opined that significant works on the highway would only commence next year.
Meanwhile, MIDF Research said it had reduced its earnings forecast on Edgenta for FY16 and FY17 by 4% to RM209.2mil and RM247.5mil respectively.
“We expect flat growth for FY16 forecast due to expectations of lower margins faced by asset management division,” it said in a report yesterday.
MIDF said despite the current challenging operating environment, the recurring earnings coming from Edgenta’s infrastructure services and integrated facilities management should sustain the bottom line in the upcoming quarters of FY16.
“In addition, we are expecting operating environment to recover in FY17 coupled with contributions from its new ventures,” it pointed out.