MARC affirms ratings on UEM Edgenta’s RM1bil sukuk Murabahah programme

KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed its ratings of MARC-1IS /AA-IS on UEM Edgenta Bhd’s Islamic Commercial Papers (ICP) and Islamic medium-term notes (IMTN) under the sukuk Murabahah programme of up to RM1bil.

The ratings outlook is stable.

In a statement, the rating agency said the ratings were driven by UEM Edgenta’s established strong operating track record in healthcare and infrastructure services gained through long-term contracts in healthcare support services (HSS) and highway maintenance works. Its strong credit profile is underpinned by healthy liquidity and a low leverage position.

“Moderating factors to the ratings are pressures on margins due to increased operating cost, and potential further deferment of work orders under its infrastructure business,” MARC said.

It added that the higher operating cost for its HSS business was associated with requirements to meet stringent precautionary measures during the pandemic in 2020-2021.

The margin compression and escalating pandemic-induced cost in the Malaysia concession business has resulted in a pre-tax loss of RM5.2mil for subsidiary Edgenta Mediserve Sdn Bhd.

However, this loss was offset by its overseas HSS business, undertaken by subsidiary UEMS Pte Ltd, which recorded an operating profit of S$31.2mil.

For UEMS, the pandemic-induced cost increases had been mitigated by opportunities in Singapore and Taiwan; for 1H2021, it was able to secure new contracts amounting to RM314mil.

Overall revenue from the healthcare services operations grew 14.1% y-o-y to RM645mil in 1H2021. Pre-tax profit was 34.3% higher y-o-y at RM37.1mil.

The group’s infrastructure services business, undertaken by Edgenta PROPEL Bhd, was also impacted by lower civil and pavement works executed for annual work plan and traffic management for the expressways during the movement restriction periods.

For 1H21, the infrastructure services business registered a 6.5% y-o-y decline in revenue to RM250.8mil and a decrease in pre-tax profit by 46.1% to RM17.7mil.

For 1H21, consolidated revenue improved by 7.6% y-o-y to RM1bil while pre-tax profit remained modest at RM29.6mil.

Consolidated borrowings stood at RM464.6mil as at end-June 2021, translating to a low gross debt-to-equity ratio of 0.30 times. This includes the outstanding sukuk of RM250mil.

The group has a strong liquidity position and remains in a net cash position.

Going forward, it has work-in-hand worth a combined RM11.6bil as at end-June 2021, the bulk of which is related to infrastructure services (RM7.3bil) and healthcare support (RM3.4bil). This will support earnings visibility in the medium term.