UEM Edgenta - img.pickastock.info

Hong Leong Investment Bank Berhad (10209-W)

1 HLIB Research l www.hlebroking.com

4 May 2021

Company Update

HLIB Research PP 9484/12/2012 (031413)

UEM Edgenta

Gan Huan Wen [email protected] (603) 2083 1719

BUY (Maintain)

Target Price: RM2.53

Previously: RM2.00

Current Price: RM1.80

Capital upside 40.6% Dividend yield 4.8%

Expected total return 45.4%

Sector coverage: Facilities management

Company description: Edgenta is involved in

facilities management for the healthcare and infra

sectors. It also undertakes engineering consultancy

Share price

Historical return (%) 1M 3M 12M Absolute 1.1 19.2 -28.6 Relative 0.8 18.6 -36.8

Stock information

Bloomberg ticker UEME MK Bursa code 1368 Issued shares (m) 832 Market capitalisation (RM m) 1,497 3-mth average volume (‘000) 974 SC Shariah compliant Yes F4GBM Index member No ESG rating N.A.

Major shareholders

UEM Group Berhad 69.1% Urusharta Jamaah Sdn Bhd 5.8% CIMB Group Holdings Bhd 3.2%

Earnings summary

FYE (Dec) FY20 FY21f FY22f PATMI - core (RM m) 45.5 102.3 139.7 EPS - core (sen) 5.5 12.3 16.8 P/E (x) 31.3 14.6 10.7

A glimpse into its digital healthcare foray

We explore Edgenta’s foray into digital healthcare, which begins with the

launch of QuickMed (a digital healthcare platform aimed at digitalising

healthcare practices in Malaysia). While we have yet to factor in any financial

impact from the digital health ventures for the time being, we raise our FY21/22

earnings forecasts by 52.7/65.5% (amid a low base) to account for earnings

recovery in Edgenta’s core businesses. After tweaking our SOP-derived

valuation methodology and rolling over our valuation year, our TP rises to

RM2.53 from RM2.00. Maintain BUY.

Edgenta’s core business currently involves facilities management for the healthcare

and infrastructure sectors, which historically accounted for ~45% and ~35% of

revenue over the previous 5 years. With Edgenta’s success in adopting technology

in their healthcare support services operations, digital healthcare is the logical next

step. In this report, we explore Edgenta’s planned digital healthcare ventures going

forward.

QuickMed. QuickMed is a platform launched by Edgenta to help healthcare providers

digitise their operations and connect to the internet (i.e. their target user base are

healthcare providers). QuickMed’s digital solutions include storage of data on cloud,

automation of billing, and more. We reckon Edgenta will need to acquire a sizeable

user base before these ventures can be monetised effectively.

Potential longer-term business model. We believe QuickMed will be the start of a

comprehensive digital healthcare journey. While it is still unclear what monetisation

strategies Edgenta will purse, it may come in a few forms, namely: (i) subscription

fees from healthcare providers using the QuickMed platform for operations, (ii) selling

medical products to users online, (iii) charging fees for value adding services within

the platform such as virtual consultations, (iv) charging referrals fees to clinics that

patients find via Edgenta’s platforms, (v) selling membership packages to users, (vi)

selling wellness packages to users.

Ideal management team. We are enthusiastic about Edgenta’s appointment of Mr.

Syahrunizam Samsudin (Managing Director & CEO) in mid-FY20 given his

formidable track record in launching and growing digital ventures. Note that during

his time at Touch ‘N Go, Mr. Samsudin successfully launched TNG e-wallet as a JV

with Ant Financial (affiliate company of Alibaba) which grew to become the largest e-

wallet in Malaysia.

Forecasts. As Edgenta’s digital healthcare ventures are still in its infancy, we do not

factor in any financial impact from the digital health ventures for the time being.

However, we raise our FY21/22 earnings forecasts by 52.7/65.5% (amid a low base)

to account for earnings recovery from the Infrastructure services division from road

maintenance works pushed back into FY21 from Covid-19 disruptions on operations

in FY20.

Maintain BUY. We take this opportunity to roll over our valuation year and tweak our

SOP valuation methodology (Figure #6). All in all, our TP rises to RM2.53 from

RM2.00. In the shorter term, we reckon the share price will be driven by (i) recovery

in the infrastructure services earnings from roadworks pushed back from FY20 (ii)

projected FY21 healthy dividend yield of 4.8%.

mailto:[email protected]

UEM Edgenta l Company Update


Edgenta Financial Forecasts

FYE Dec (RM m) FY19 FY20 FY21f FY22f FY23f

Revenue 2,411.2 2,040.6 2,101.8 2,143.7 2,179.8

EBIT 251.4 54.5 158.6 207.7 231.0

PBT 245.0 49.5 154.8 205.8 230.2

PAT 188.0 14.9 113.0 154.4 172.7

PATMI – Core 158.7 45.5 102.3 139.7 156.3

Core EPS (sen) 21.9 5.5 12.3 16.8 18.8

P/E (x) 8.2 31.3 14.6 10.7 9.6

EV/EBITDA (x) 4.2 9.4 5.9 4.8 4.4

DPS (sen) 14 0 8.6 11.8 13.2

Yield (%) 7.8% 0 4.8% 6.5% 7.3%

BVPS (RM/share) 1.9 1.9 2.0 2.0 2.1

P/B (x) 0.9 0.9 0.9 0.9 0.8

ROE (%) 11.8% 2.8 6.3% 8.4% 9.2%

Net Gearing (%) CASH CASH CASH CASH CASH



Digital healthcare services

What role do online medical services play

Offline medical services provided by hospitals and clinics mainly address patients with serious

health problems (Figure #1). Offline medical care is unable to provide comprehensive chronic

disease management for patients after hospital visits nor health management for people in need

of disease prevention. Gaps in the care chain (particularly in the wake of Covid-19) is can be

addressed with online medical services.

As an important supplement to offline medical services, online medical services can meet patients’

medical demand both before and after hospital/clinic visits. We reckon Edgenta’s digital health

offerings, QuickMed and Wellthily are aimed at addressing these issues.

Edgenta’s medical service offerings QuickMed & Wellthily.

Figure #1 Online medical services address the demand for both health and sick people

HLIB

QuickMed.

QuickMed is a platform launched by Edgenta with the purpose of helping offline medical

institutions digitise their operations and connect to the internet (i.e. their target user base are

healthcare providers). QuickMed’s digital solutions include storage of data on cloud, automation

of billing, and more Figure #2. Not only would these solutions simplify administrative tasks and

increase efficiency in healthcare operations, it would also allow support staff to focus on more

important matters which would lead to revenue generation.

To start, we expect Edgenta to approach large clinic chains as well as leverage their existing client

base of hospitals in order to build their base of healthcare providers and doctors. Subsequently,

after migrating a significant number of healthcare providers onto their platform, we expect Edgenta

to eventually offer patients a platform to find clinics/doctors, a marketplace for purchasing medical

products online, in addition to virtual consultations. For the time being, the QuickMed platform is

available to healthcare providers at a very affordable price starting at just RM100/ month (#Figure

3).

Wellthily.

In addition to QuickMed, Edgenta also have plans to launch a health management mobile

application. Wellthily is a health management app aimed at empowering users (i.e. end individual

users) to take charge of their health and wellbeing by promoting healthy behaviour within their

communities. We expect the app to be able to track users various health metrics (step count,

heart rate, sleep quality etc.) by connecting to wearables (Fitbits, smartwatches, wearable

monitors). Keeping track of these metrics will give users an overview of their general level of

wellbeing across time, with the intent of introducing opportunities to improve these metrics over

time.

We expect Edgenta to launch Wellthily as a free mobile application in order to build a monetisable

user base. Subsequently, we expect Edgenta to monetise the application with various plugs ins

including a marketplace for users to purchase medical products, wellness packages, OTC

medicines and so forth.



Figure #2 QuickMed’s product offerings

QuickMed features Advantages

Digital storage of data on cloud which

enables clinics and hospitals on the

QuickMed platform to access (with the

patients approval) medical records from all

clinics and hospitals on the QuickMed

platform.

- Access to comprehensive patient medical records would help

doctors make more accurate patient diagnosis.

- Cloud-based medical data makes it easier for upstream and

downstream software, systems and third parties to review and make

changes to electronic health records or medical details. For

example, a pharmacist could look at a patient’s prescriptions to

make sure there are no unplanned drug interactions.

Platform for online consultations, which

would connect doctors to patients for

virtual consultation.

- Online consultations would allow immobile patients to receive

medical care from medical professionals without leaving their home.

- Shorter waiting time for patients.

- Patients would be able enjoy anonymity and talk freely about their

medical issues without suffering from embarrassment.

- Access a wider base of medical professionals, particularly useful for

patients that reside in remote locations with lesser access to

medical help.

Automated notifications and reminders

to patients for follow ups, vaccinations,

medical check-ups etc.

- Automated reminders would provide consistent, productive

interactions and create satisfaction with patients.

- Enable support staff to focus resources on work that drives

revenue, rather than on nominal time-consuming tasks.

- Automated reminders will reduce no-shows and service delivery

costs by implementing an automated system that requires little-to-

no technical expertise.

Online referrals for doctors to refer

patients to hospitals or other specialised

clinics

- Online referrals will enable patients to have access to all medical

specialists that is registered under the QuickMed platform.

- Online referrals will ensure patients are referred to the right

healthcare service or specialist and that they have the right

information in a timely manner.

Online prescriptions for doctors to

prescribe medication via virtual

consultation.

- Online prescriptions would ensure convenient and safe

prescriptions.

- As patient's medical history is already available in the QuickMed's

system, they do not have to spend time answering the same

questions repeatedly and going over their medical history.

Integrated billing, Third Party

Administrator (TPA) & Inventory

management

- Simplify claims submissions with built in TPA management function

- Integration between billing and inventory means clinics and

hospitals will be able to keep track of inventory that is low and

needs to be replenished or detect pilferage.

QuickMed.care

Figure #3 QuickMed current pricing structure

QuickMed.care



Virtual consultation competitors

Virtual consultations are expected to be a big part of Edgenta’s digital healthcare venture in the

future. We note that this concept is starting to become mainstream in many Asia Pacific countries.

In a survey by Bain, 46% of surveyed consumers in the Asia Pacific expect to make greater use

of digital healthcare services within the next five years. Furthermore, the Covid-19 pandemic

appears to have accelerated the adoption of virtual consultation, with a number of digital

healthcare providers in Asia Pacific reporting rapid growth (Figure #4)

Figure #4 Increase in daily active users (DAU) in March 2020 vs. 2019 average in selected Asia Pacific

Digital Healthcare providers

SimilarWeb

Closer to home, we note that there are already a number of existing digital healthcare companies

which all offer virtual consultation, amongst other services (Figure #5), implying the Malaysian

market is already receptive to the practise of virtual consultation.

Despite this, we reckon virtual consultation in Malaysia is still in its formative stage. This may be

partly due to the lack of coverage for virtual consultations. Note that in Malaysia currently, users

of digital health services are largely paying for the service out of pocket given the lack of insurance

plans covering virtual consultations. Should this change, we reckon it would speed up the adoption

of virtual consultations. In the survey by Bain mentioned above, 91% of respondents said they

would use digital health services if an employer or insurance provider covered the costs.

156%147%

101%

39% 40%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Doctor Anywhere(Singapore)

MyDoc(Singapore)

Halodoc(Indonesia)

Alodokter(Indonesia)

Australia (HotDoc)

https://www.bain.com/insights/heeding-the-call-to-reinvent-healthcare-delivery/



Figure #5 Existing doctor service/online consultation platform and their various services

Virtual

Consultation

Marketplace/

Medicine

Delivery

Book an

ambulance

Book a Health

Screening at

home

Book a doctor

for house

calls

BookDoc

X X

Doctor2U

X X X X

DoctorOnCall

X X X

SpeedDoc

X Coming Soon X X X

QuickMed.care

Seeing a doctor online, buying drugs offline the cheapest option for consumers?

Currently, online delivery of prescription medicine is not permitted in Malaysia (source). While

many existing players have online marketplaces for users to purchase health products online

(Figure #5), note that this does not include prescription drugs. We understand that their

marketplaces of the existing players only offer over-the-counter medicines (e.g. Panadol), sexual

wellness products, vitamins etc.

Online diagnosis may result in ‘seeing doctors online and buying drugs offline’. Up until Dec-19,

Doctors consultation fees were capped. This led to private clinics and hospitals increasing the

prices of prescription drugs to increase profitability. An article in The Star revealed that the cost

of prescription medicines could be up to 150% more expensive in private healthcare providers

when compared to independent pharmacies.

Therefore, users may opt to have a virtual consultation, receive a prescription from the

consultation and purchase prescription medicines at an independent pharmacy, which would be

significantly cheaper than had they purchased the medicine at a private clinic or hospital. This

could represent the cheapest option for patients.

Management team with a proven track record in digital ventures

We note that Edgenta have been on a hiring spree recently, bringing in a number personnel in

upper management positions. Looking at their track-record in previous technology related

ventures, we reckon their experience will prove invaluable in driving Edgenta’s digital ventures

going forward.

Syahrunizam Samsudin (Managing Director & CEO) joined Edgenta in Jul-20 from Touch ‘n

Go (TNG) where he was the CEO. During his time there, he launched Touch ‘n Go Digital (TNG

Digital), a JV with Ant Financial (affiliate company of Alibaba Group). His successes include

launching Touch n’ Go eWallet, which grew to become the largest e-wallet in Malaysia with 15m

users and over 300,000 merchants currently. Touch ‘n Go RFID (radio-frequency identification)

Tag, for electronic toll collection is another successful digital venture launched while Mr. Samsudin

helmed TNG.

Chua Yong Howe (Chief Digital Officer) joined Edgenta in Jan-21 from Eureka AI, an artificial

intelligence enterprise software company where he was the country managing director. Eureka

AI connects mobile world data into an intelligence platform and enables partnerships with leading

corporations. Eureka AI counts Softbank as one of their investors.

https://www.pharmacy.gov.my/v2/en/content/tips-how-buy-medicines-online.html

https://www.thestar.com.my/news/nation/2019/10/22/costly-meds-a-bitter-pill-to-swallow



Future plans and monetisation strategy

With the exception of subscription revenues from healthcare providers subscribing to the

QuickMed platform, we reckon significant monetisation of these ventures will only occur after

Edgenta acquires a sizeable base of healthcare providers and users.

Monetisation strategy of these ventures are still cloudy. However, examining established

international players (PA Good Doctor, Teladoc, Alibaba Health, JD International Health) we

believe they may come in a few forms shown below:

(i) online market place for users to purchase medical products with back end either

managed by Edgenta or via a partnership with an existing pharmacy player.

(ii) charging healthcare providers a fee for online consultations.

(iii) charging healthcare providers a fee for referrals.

(iv) selling membership packages to users.

(v) selling wellness products to users (health insurance, massage and spa packages,

health check-ups etc.).

Forecasts

While these ventures are still in its nascent stage, we do not factor in any significant earnings from

these ventures for the time being. However, we note that much of the development costs of these

ventures have already been incurred in FY20, given that Wellthily is already at the beta stage and

QuickMed has only just been launched. Furthermore, Edgenta shared that these ventures will be

partly funded with ~RM100m savings over 5 years from releasing inefficiencies in mechanisation,

automation, optimizing procurement and streamlining their business structure in their core

business.

To recap, Infrastructure services revenues had fallen by -39.9% YoY in FY20 mainly due to

numerous MCO periods resulting in travel restrictions and lower traffic volumes which resulted in

lower maintenance work carried out on pavements and expressway paired with the deferment of

non-critical projects. With the loosening of MCO restrictions in FY21, we expect recovery in

earnings in the Infrastructure services division from works pushed back into 1H21 from FY20. As

such, we raise our FY21/22 earnings forecasts by 52.7/65.5% (amid a low base).

Valuations

We take this opportunity to roll over our valuation year and tweak our SOP valuation methodology

(Figure #6). All in all, our TP rises to RM2.53 from RM2.00. We maintain our BUY call. While we

are positive on Edgenta’s digital healthcare venture, we have yet to factor it into our SOP valuation

methodology given the venture is still in its formative stage and will take time before the financial

contribution can be seen. In the shorter term, we reckon the rebound in share price will be driven

by (i) recovery in the infrastructure services earnings from roadworks pushed back from FY20 (ii)

projected FY21 healthy dividend yield of 4.8%.



Figure #6 SOP Valuation for Edgenta

Sum of Parts (SOP) Value Valuation basis

(RM m)

Healthcare, Infrastructure, Property and Facilities Solutions 2,553.6 DCF at 9% WACC

Asset Consultancy (OPUS) 62.9 15x FY21 net profit

Associate Companies 302.0 DCF at 9% WACC

2,918.5

Discount to SOP 35.0%

1,897.0

Add: Cash 206.1 Based on most recent quarter net cash

Target Market Cap 2,103.2

Share base 831.62

TP 2.53

HLIB

Hong Leong Investment Bank Berhad (10209-W) l Company Update


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Stock rating guide

BUY Expected absolute return of +10% or more over the next 12 months.

HOLD Expected absolute return of -10% to +10% over the next 12 months.

SELL Expected absolute return of -10% or less over the next 12 months.

UNDER REVIEW Rating on the stock is temporarily under review which may or may not result in a change from the previous rating.

NOT RATED Stock is not or no longer within regular coverage.

Sector rating guide

OVERWEIGHT Sector expected to outperform the market over the next 12 months.

NEUTRAL Sector expected to perform in-line with the market over the next 12 months.

UNDERWEIGHT Sector expected to underperform the market over the next 12 months.

The stock rating guide as stipulated above serves as a guiding principle to stock ratings. However, apart from the abovementioned quantitative definitions, other qualitative measures and situational aspects will also be considered when arriving at the final stock rating. Stock rating may also be affected by the market capitalisation of the individual stock under review.

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