Quick take: UEM Edgenta shares up 6% on new contract

  • Stock on the Move
  • Friday, 10 Jul 2020

KUALA LUMPUR: Shares in UEM Edgenta Bhd rose over 6% in early trade after securing a hospital support services contract worth RM264mil.

The counter rose 6.06%, or 12 sen to RM2.10, its highest in over two weeks. It is currently trading at a PE ratio of 9.05 times.

UEMS Solutions Pte Ltd (UEMS), a 97.46%-owned unit of UEM Edgenta, has secured the contract from the Ministry of Health of Singapore to provide hospital support services.

UEM Edgenta said the total value of the contract was estimated between RM264.5mil and RM284mil, depending on the actual manpower resources to be deployed for the job.

The duration of the contracts ranges from two years and three months, to three years and three months, with options to extend for another three to five years.

RHB Research has upgraded UEM Edgenta to “buy” from “neutral” with higher RM2.75 target price from RM2.70, 39% upside and 5% yield.

“We are positive on UEM Edgenta’s ability to clinch more regional healthcare support businesses, while Covid-19’s impact on the group’s near-term profitability has been largely priced in, in our view,” it said.

The research house said while earnings accretion from the contracts are seen as minimal this year – partly due to higher cost intensity expected for this division over the pandemic’s spread– it nonetheless projects more meaningful income to flow through from FY21 onwards.

“In our view, the new contract wins are also a testament to UEM Edgenta’s ability to maintain its service quality to hospitals,particularly during this challenging period, which also bodes well for its prospects of securing contract extensions and/or additional contract wins down the road,” it said.

RHB Research increased FY20-22 EPS estimates by 1.2%, 4.7%, and 4.6% to factor in the new contract wins, while keeping other assumptions intact.

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