FABER : Maintain BUY at RM2.75 with TP RM4.00

It just gets better for Faber Group

Faber Group Bhd
(Nov 18, RM2.72)
Maintain buy at RM2.75 with target price RM4: For 9MFY10, Faber reported revenue and net profit of RM684.9 million and RM75.9 million respectively, which were largely within our expectations, accounting for around 77% of our net profit forecasts for FY10. Revenue jumped 34.5% year-on-year (y-o-y) while net profit surged more than 89% y-o-y. The strong revenue growth y-o-y was attributed to higher contribution from its integrated facilities management (IFM) business concession and non-concession divisions.

Growth in the concession division was attributed to higher variation orders, higher bed occupancy rates and new facilities at the government hospitals under Faber’s concession. Meanwhile, the significant increase in its non-concession division was driven by revenue contribution from the IFM contracts it secured in  UAE last year. However, due to seasonal factors related to the summer season and Ramadan month, revenue and net profit were lower quarter-on-quarter on lower work billings from its IFM contracts in Abu Dhabi.

While revenue for 9MFY10 was up by 34.5% y-o-y, earnings before interest and tax (Ebit) rose 44.6% y-o-y on wider margins from its non-concession division, particularly from its IFM contracts in Abu Dhabi. Other than the higher revenue and improved margins, a lower effective tax also lent support to net profit, which jumped by more than 89% y-o-y. We gather that the lower effective tax was largely attributed to Faber LLC, which operates in a tax-free UAE.

As we expect Faber to register similar performance in 4QFY10, we have revised upwards our earnings forecast for FY10 and FY11 by 7.9% and 4.7% respectively, after adjusting our margins and effective tax rate assumptions. We maintain our “buy” recommendation at an unchanged target price of RM4 based on sum-of-parts valuation. Our fair value is premised on the assumption that Faber’s concession will be renewed on existing terms. We still think that Faber should get its existing concession renewed in view of its track record and excellent execution of the concession. — OSK Investment Research, Nov 18