Posted Date: December 24, 2021

MARC has affirmed its ratings of MARC-1IS /AA-IS on UEM Edgenta Berhad's Islamic Commercial Papers (ICP) and Islamic Medium-Term Notes (IMTN) under the Sukuk Murabahah Programme of up to RM1.0 billion. The ratings outlook is stable.

The ratings are 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.

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 RM5.2 million for subsidiary Edgenta Mediserve Sdn Bhd, which serves 32 government hospitals in Peninsular Malaysia. However, this loss was offset by its overseas HSS business, undertaken by subsidiary UEMS Pte Ltd, which recorded an operating profit of SGD31.2 million. 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 RM314 million. Overall revenue from the healthcare services operations grew 14.1% y-o-y to RM645.0 million in 1H2021. Pre-tax profit was 34.3% higher y-o-y at RM37.1 million.

The group's infrastructure services business, undertaken by Edgenta PROPEL Berhad, 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. Edgenta PROPEL undertakes long-term highway maintenance services with related party Projek Lebuhraya Usahasama Berhad (PLUS), including North-South Expressway and Lebuhraya Pantai Timur 2. For 1H2021, the infrastructure services business registered a 6.5% y-o-y decline in revenue to RM250.8 million and a decrease in pre-tax profit by 46.1% to RM17.7 million.

For 1H2021, consolidated revenue improved by 7.6% y-o-y to RM1.0 billion while pre-tax profit remained modest at RM29.6 million. Consolidated borrowings stood at RM464.6 million as at end-June 2021, translating to a low gross debt-to-equity ratio of 0.30x. This includes the outstanding sukuk of RM250.0 million. The group has a strong liquidity position and remains in a net cash position. Going forward, it has work-in-hand worth a combined RM11.6 billion as at end-June 2021, the bulk of which is related to infrastructure services (RM7.3 billion) and healthcare support (RM3.4 billion). This will support earnings visibility in the medium term.

Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my;
Glenn Wong Liu Yu, +603-2717 2961/ liuyu@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my.

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