(Oct 6, RM1.32)
Maintain trading buy at RM1.28 with revised fair value of RM2.57 (from RM2.90): We gather that Faber’s concession period may be cut from 15 years to 10 years for the upcoming renewal. We had previously highlighted the possibility of the concession period being shortened to 10 years, similar to last year’s renewal of Pharmaniaga’s concession for a 10-year period. However, with all the facilities already in place and there being no major capital investment required, the shorter new concession is unlikely to affect the concessionaire’s profitability and cash flow. As such, we are not overly concerned over the shorter duration.
It has been reported that the government might not renew Faber’s Hospital Support Services (HSS) concession for East Malaysia and speculation has it that the concession might instead go to local parties from Sabah and Sarawak. However, as Faber has been asked to submit its request for proposal based on its current concession’s geographical coverage comprising the northern region of the peninsula and East Malaysia, we believe this indicates a high possibility of Faber maintaining its current geographical coverage.
We maintain our “trading buy” recommendation on Faber but at a lower fair value of RM2.57 against RM2.90 previously, on taking into account a
potentially shorter effective period of 10 years for the renewed concession. Despite uncertainties over the concession renewal, our FY12 numbers are based on the assumption that the existing concession will be renewed based on its current rate and scope. — OSK Research, Oct 6. Written by Financial Daily
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