UEM Edgenta Bhd, a company that provides manages fixed assets and infrastructure, would have a healthy cash balance sheet after the proposed sale of one of its key assets.
Its debts would be reduced significantly and it may even have some cash left after the disposal of the New Zealand-based consulting arm, Opus International Consultants Ltd.
However, the company, which has grown through acquisitions in the past two years, is not looking at any more purchases for now, although Opus was a major revenue contributor to its operations.
Opus made up for 46% and 8% of UEM Edgenta’s revenue and net profit last year.
UEM Edgenta’s chief executive officer Datuk Azmir Merican tells StarBizWeek that acquisitions that had been done in the past one to two years, together with the organic growth of its existing business, will help offset these effects.
“We are optimistic that our focus on the organic growth of our business will fill the revenue and earnings gap. We expect to achieve improved revenue in the current year of operations, supported by the contribution from newly acquired business in healthcare and real estate sectors.
“Profitability is expected to improve from next year onwards once the economies of scale from various operational initiatives kicks in,” he says.
Among the measures UEM Edgenta is taking are the implementation of Enterprise Resource Planning to enhance its back-end support system, integration of processes of acquired businesses and introduction of performance-based contracting.
UEM Edgenta had acquired two businesses in the past years to grow its footprint and carve a niche in the asset management business.
In Dec 2015, it acquired an 80% stake in integrated facilities management services company KFM Holdings Sdn Bhd for RM128mil.
And in Sept 2016, it bought a Singapore-based facilities management company UEMS Pte Ltd (through the acquisition of Asia Integrated Facility Solutions Pte Ltd or AIFS) for S$185.9mil (RM563mil).
KFM has its presence in United Arab Emirates and Malaysia, where its unit Veridis PPP One Sdn Bhd holds a 20-year concession from the government to provide rectification works, retro-fitting works, asset management services and asset management programme for the Prime Minister’s office, the Perdana Putra Complex.
UEMS presently services about 90 hospitals and healthcare institutions in Singapore, Taiwan and Malaysia, with a total of 26,000 beds.
In Malaysia, UEMS services the private healthcare and hospital segments such as the Prince Court Medical Centre, Pantai Hospital Kuala Lumpur, Gleneagles Penang and Assunta Hospital.
The acquisitions have helped position UEM Edgenta as a provider of total assets solutions provider in the region. It is also to diversify the company’s dependence on providing support services for hostitals.
In 2015, UEM Edgenta, formerly known as Faber, has to share the concession to provide support services to hospitals in Sabah and Sarawak with new players from these states.
UEM Edgenta has had to give up 60% of its stakes to other parties in the Sabah and Sarawak concessions from a 100%-owned stake before.
While it was out of UEM Edgenta’s control having to reduce its stake in its Sabah and Sarawak concession business some two years ago, the company this time chose to dispose of its stake in the New Zealand-based subsidiary Opus voluntarily.
The company says the disposal of its 61.2% stake in Opus is being transacted at very attractive premiums to how much the market had valued the business.
The disposal was done at price-earnings multiple of about 20 times based on earnings as of June 30, 2017 and excluding dividends.
The planned disposal for a net amount of RM523.9mil to a Canadian company WSP Global Inc is expected to complete by the end of this year.
Azmir says Opus was in a net loss position of NZ$29.9mil for financial year ended December 2016 largely due to an impairment.
If the transaction is valued in terms of enterprise value to earnings before interest, taxes, depreciation and amortisation, Azmir says it was at 7.4 times excluding potential dividends and 7.7 times including potential dividends, and this is based on trailing 12 months to 30 June 2017 results
The company had earlier said in its announcement that the disposal is a premium of 86.9% to the closing price per Opus share of 99 NZ cents on Aug 11, 2017 and 58.1% higher than Opus’ 52-week high daily closing share price of NZ$1.17.
While ruling out inorganic opportunities in the near to medium term, UEM Edgenta’s return to a net cash capital structure will surely give it enough flexibility to take advantage of any attractive acquisition targets that may come its way in the longer term.
While UEM Edgenta has disposed of Opus, it will retain Opus Group Berhad (OGB) an entity that focuses on project management and design consultancy operating in Malaysia and Indonesia, and which has been drawing resources from Opus primarily in the asset management and consultancy businesses in the expressway sector.
OGB via its wholly owned subsidiary Opus International (M) Berhad (“OIM”) will amongst others, continue to provide Asset Consultancy services in the two countries and this includes supporting UEM Group Berhad (“UEM Group”) (the parent company of UEM Edgenta) in delivering the Pan Borneo Highway Project in Sabah.
Perhaps a steady dividend policy is the next course of action for UEM Edgenta.
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