PETALING JAYA: UEM Edgenta Bhd is expected to record strong earnings for the next three years as it stands to be the main beneficiary of the country’s economy reopening and the healthcare industry’s growth.
The total asset management and infrastructure solutions group is expected to see a compounded annual growth rate of 67% from 2021 to 2023 due to the low base effect from last year, with a healthy earnings before interest, taxes, depreciation and amortisation margin of 10% to 12%.
UEM Edgenta’s earnings growth will also be supported by its robust orderbook of RM12.2bil, mainly from its healthcare and infrastructure services divisions, as well as operational efficiency through its advanced technology integration.
According to UOB Kay Hian Research, the growth of the healthcare industry, lifting of the interstate travel ban, growing traction of environmental awareness and rollout of infra projects could act as catalysts to further support UEM Edgenta’s earnings visibility, for the next three to five years.
“We believe UEM Edgenta has a positive growth outlook, backed by its parent company UEM Group, which is owned by Khazanah Nasional Bhd, ” the research house noted.
Given UEM Edgenta’s strong net cash position of RM206.2mil and gross gearing ratio of 0.32 times, UOB Kay Hian Research expects a company dividend yield of between 5% and 7% for 2021 to 2023, offering further potential upside once earnings normalise.
This will support its dividend payout ratio of 70%, which is consistent with its dividend policy. “Historically, UEM Edgenta has given out special dividends to optimise its balance sheet and we believe the generous dividends are sustainable, backed by earnings from its long-dated concessions with 81 government hospitals, and more than 3,000km of highways in Malaysia, ” it said.
Besides that, UOB Kay Hian Research expects the group to be eligible for FTSE4Good Bursa Malaysia (F4GBM) Index inclusion this year as it has integrated environmental, social and governance or ESG practices across its core divisions.
“This will further enhance its outlook as it will raise its visibility to a wider base of investors, ” it added. As such, UOB Kay Hian Research is keeping a “buy” call on the stock with a target price of RM2.30.