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 its Sukuk Murabahah programme of up to RM1.0 billion. The ratings outlook is stable.
The affirmed ratings reflect UEM Edgenta’s strong business and financial profile, stemming mainly from long-term contracts in its growing regional healthcare support services portfolio, and recurrent highway maintenance services. The contracts have provided steady earnings growth which, coupled with low borrowings levels, have translated into strong credit metrics, in particular liquidity and leverage positions. The rating agency is of the view that if UEM Edgenta maintains this trajectory, the outlook and/or rating could be revised upwards in the near term. This notwithstanding, MARC will consider the impact of the coronavirus outbreak in its assessment of the group’s business operations and financial profile. As at date, the rating agency understands that except for a hiatus on its domestic highway routine and other non-critical works during the movement control order period, the group’s business divisions are operating as usual.
UEM Edgenta, majority-owned by Khazanah Nasional Berhad through UEM Group Berhad, has a longstanding involvement in healthcare services servicing over 300 hospitals across Malaysia, Singapore and Taiwan through long-term government and commercial operation contracts. These include up to five-year renewable contracts (with the option to renew up to a further five years) with Singapore’s Ministry of Health for 20 out of 35 public hospitals in the city state, valued at a combined RM944 million. The ability to secure this sizeable contract from the Singapore government, which accounted for 22% of an estimated total of RM4.2 billion in healthcare contracts as at end-2019, reflects UEM Edgenta’s strong capability in healthcare support services.
UEM Edgenta’s major long-term highway maintenance services contract is with a related company, toll concessionaire Projek Lebuhraya Usahasama Berhad (PLUS), which owns a portfolio of highways including the North South Expressway and Lebuhraya Pantai Timur 2. The recent changes in PLUS’ tolling rates are not expected to have material impact on Edgenta PROPEL Berhad, a wholly-owned subsidiary of UEM Edgenta which undertakes the highway maintenance services. MARC also considers payment risk from PLUS as minimal given the toll concessionaire’s very strong capacity to meet its contractual obligations. On the regional front, Edgenta has presence via the joint operation of the 116 km Cikampek Palimanan Highway, part of the Trans-Java toll road. Its maintenance contracts cover over 3,100km of highways and state roads. The rating agency understands that the group is seeking to broaden its highway maintenance services in the region.
For 2019, UEM Edgenta’s group revenue grew 10.5% y-o-y to RM2.4 billion and pre-tax profit 23.5% y-o-y to RM245.0 million. The highway maintenance and healthcare services segment accounted for 49% and 36% of pre-tax profit. Its leverage as reflected by the gross debt-to-equity of 0.33x remained relatively low. It has a strong liquidity position with RM621.0 million in unencumbered cash against short-term borrowings of RM155.9 million. With limited capex undertaken, total borrowings have declined to RM519.1 million at end-2019. Cash flow from operations has improved, supported by the strong credit profile of its major customers, mainly the Malaysian and Singaporean governments and related company PLUS.