MARC Ratings has affirmed its ratings of MARC-1_IS /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 long-term rating carries a stable outlook. The outstanding sukuk stood at RM250.0 million as at end-November 2022.

The rating affirmation reflects UEM Edgenta’s longstanding operating track record in healthcare and infrastructure services and its strong credit profile, characterised by low leverage and healthy liquidity positions. These strengths are moderated by inflationary pressures which contributed to cost escalation, particularly in undertaking pandemic-related cleansing work for the government.

In 9M2022, consolidated revenue and pre-tax profit grew to RM1.8 billion and RM55.3 million (9M2021: RM1.6 billion; RM45.3 million) as its key businesses rebounded from the impact of pandemic-induced closures with the resumption of economic activities. Its healthcare services recorded a 7.5% y-o-y increase in revenue to RM1.1 billion on the back of new contracts in Singapore and Taiwan. Its infrastructure services recorded sharp revenue growth of 36.2% y-o-y to RM544.7 million on higher maintenance work as traffic volume recovered. There is a slight uptick in operating profit margin to 3.2% from 3.0% but it remains substantially lower from around 10% in 2018. The decline is largely due to inflationary pressures which contributed to cost escalation across all segments, as well as by the higher labour costs incurred earlier this year.

UEM Edgenta undertakes healthcare support services (HSS) for over 300 hospitals in Malaysia, Singapore, and Taiwan. As at end-June 2022, it had contracts worth RM2.9 billion that are highly likely to be renewed upon expiry. For its infrastructure services, it has a long-term master maintenance services contract worth RM6.5 billion with related company Projek Lebuhraya Usahasama Berhad (PLUS). Apart from domestic contracts, the group also has regional exposure in Indonesia for highway maintenance works. MARC Ratings views the prospects for contract renewals are strong given UEM Edgenta’s longstanding expertise in delivering these services.

The rating agency also notes consolidated borrowings have remained steady, standing at RM500.0 million, translating to a low gross debt-to-equity ratio (DE) of 0.32x; the group is in a net cash position as at end-

September 2022. Borrowings are not expected to rise sharply given that the capex requirement has been largely met through internal funds. Liquidity position remains strong with unrestricted cash balances of RM560.7 million as at end-September 2022. Given its healthy contract order book and strong financial position, the ratings/outlook could be improved if the group maintains the uptrend in operating profit margin. 

The stable outlook reflects our expectations that UEM Edgenta will broadly maintain its credit profile within the current levels over the next 12 months.

Any upward movement in the rating and/or outlook would be considered on improvement in operating profit margin to about 5%.

The rating could come under pressure on weaker financial performance and/or if the group leverage position were to rise significantly due to acquisitions that are not earnings accretive in the near term.