View Credit Analysis Report (6053633)

Aid6053633
StatusPublished
CategoryReport
SubcategoryCorporate Debt
CoidUEMEDGENTA
Appoletid0
Date Article2021-03-30 00:00:00
PublicYes
TitleUEM EDGENTA BERHAD - 2020
Content
Rating action

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 remains stable.

Rationale

The affirmed ratings are driven by UEM Edgenta’s strong business and financial profile from long-term contracts in regional healthcare support services and recurrent highway maintenance works that continue to provide stable earnings generation. Its credit strengths are reflected by its strong liquidity and low leverage positions. UEM Edgenta is majority-owned by Khazanah Nasional Berhad (Khazanah) through UEM Group Berhad, a government-linked entity with significant business interests in key economic sectors.

The group’s healthcare support and infrastructure services divisions continue to be key contributors, accounting for 87.5% of consolidated revenue in 2020. Its healthcare segment undertakes non-clinical support services for 300 private and public hospitals. In addition to the long-term healthcare support service (HSS) contract with the Malaysian government, the group has secured 17 tender contracts with Singapore Government Restructured Hospitals, out of which 15 of these contracts have commenced as at end-December 2020. The contracts secured by the healthcare support commercial division in FY2020 have a total combined value of over RM900 million, replenishing government contracts which are running their course.

Under the group’s infrastructure services division, UEM Edgenta has a major long-term highway maintenance services contract with related company Projek Lebuhraya Usahasama Berhad (PLUS), which owns a portfolio of highways including North-South Expressway and Lebuhraya Pantai Timur 2. The division’s strong operational cash flows ensure steady earnings generation for the group. On the regional front, the jointly operated 116-km Cikampek Palimanan Highway in Indonesia makes up 3,100km of highways and state roads under its maintenance.

During 2020, the deferment of non-essential infrastructure works such as highway pavement and road repairs led to a lower revenue of RM2.0 billion. Coupled with impairment of assets from its discontinued property development operations, pre-tax profit also declined to RM45.9 million. However, as the group does not rely on external borrowings for working capital, leverage remained low at 0.32x. Net leverage position remains zero with a cash balance of RM676.1 million. A stronger performance in the coming periods, as the group continues to deliver a substantial backlog in infrastructure work under its combined RM12.2 billion work-in-hand as at end-December 2020 would further strengthen its balance sheet and liquidity.

Rating outlook

The stable outlook assumes that UEM Edgenta would broadly maintain its current credit metrics in the near term.

Rating trajectory

Upside scenario

The ratings and/or outlook could be revised upwards if UEM Edgenta’s financial performance reverts to pre-pandemic levels, supported by healthy credit metrics.

Downside scenario

Any sharp increase in leverage due to non-immediate earnings accretive investments and/or significant changes in the non-concession businesses that would affect its credit profile could lead to rating pressures.


Key Strengths
  • Long-standing operating track record in healthcare support services and highway maintenance 
  • Stable income from concession operations
  • Low leverage position
Key Risks
  • Managing COVID-19-related costs 
  • Contract termination risk

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