This article first appeared in The Edge Malaysia Weekly on December 9, 2024 - December 15, 2024
THERE has been speculation for the past few weeks that healthcare support services and property and facility solutions provider UEM Edgenta Bhd (KL:EDGENTA) will be taken private by its 69.14% parent company UEM Group Bhd, the infrastructure arm of Khazanah Nasional Bhd.
“I cannot comment on that. All I can say is that we look at all options. And our focus is again to enhance value, shareholder or stakeholder value,” UEM Group managing director Datuk Amran Hafiz Affifudin tells The Edge when asked whether UEM Edgenta will be taken private.
Before this question was raised during the interview, Amran Hafiz was talking about margin compression at UEM Edgenta.
The case for taking the company private seems strong following the drop in its share price. The stock touched a multiyear low of 62 sen in intra-day trading on Nov 5.
At its closing price of 66 sen last Friday, which gives the company a market capitalisation of RM548.8 million, the counter was down more than 30% year to date. This means the shares were trading at a little more than a third of its net tangible assets per share of RM1.88 as at Sept 30.
A back-of-the-envelope calculation shows that UEM Group would have to fork out RM168.44 million to buy up the other 30.86%, or 256.66 million shares, in UEM Edgenta. Assuming a 20% premium to the current price of 66 sen, the block of shares would cost a tad above RM200 million.
UEM Edgenta has several companies under its belt — Edgenta Healthcare Management Sdn Bhd, under which its Malaysian healthcare concession is parked; Edgenta (Singapore) Pte Ltd, which has the healthcare concessions for Taiwan and Singapore; Edgenta Facilities Sdn Bhd, which provides property and facility solutions; Edgenta Propel Bhd, which offers infrastructure services; Opus Group Bhd, an asset consultancy; and Edgenta NXT Sdn Bhd, a technology innovation company.
According to Amran Hafiz, the local healthcare concession has not seen any revisions in terms of tariff for more than 10 years, if not longer. He knows that this is not financially sustainable in the long run when costs are rising fast.
“When we started the concession, for example, the minimum wage was RM900. Now, it’s going to be RM1,700 — double that. It’s very labour intensive, and if costs continue to increase, and there is no corresponding increase in terms of your ability to charge, there will be a great gap,” he says.
UEM Edgenta probably has the highest number of personnel in the UEM group and it hires mostly locals, says the corporate chieftain.
“So without any revision of the terms of the concession, then we get margin compression. These are the challenges, and we are talking to the government. They [the government] have been very open, so we’re hopeful there’s some resolution on that front … how to ensure that we can preserve our margins, because it’s all about financial sustainability.”
For the nine months ended Sept 30, UEM Edgenta posted a net profit of RM32.56 million on revenue of RM2.23 billion. In the previous corresponding period, it registered a net profit of RM28.5 million on RM2.07 billion in revenue.
The company’s balance sheet as at end-September shows that it was in a net cash position, given its bank balance of RM493.96 million plus RM18.25 million in short-term investments, while its long-term borrowings and short-term debts stood at RM308.41 million and RM166.63 million respectively. The company had retained earnings of RM989.65 million.
“I think that at the end of the day, we have to also take into account that we are a GLC (government-linked company). So, we need financial returns, performance. But on top of that, we have to carry out our mandate and ensure that we help the government, not to burden people … You have to strike a balance. Within our concession, we are not looking for extraordinary profit … We can’t,” says Amran Hafiz.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's App Store and Android's Google Play.