Faber Group - Work, Wait, Pray

Faber’s 1HFY12 net profit made up 47% and 56% of our and consensus’ FY12 forecasts. The numbers matched our estimates as we anticipated a stronger showing in 2HFY12, especially from its property division. We maintain our forecast and Trading Buy recommendation, at an unchanged FV of RM2.34, based on a 10% discount to our SOP valuation. Despite the prolonged delay in renewing its hospital support services (HSS) concession, we hold firm to our view that a renewal is forthcoming given Faber’s vast experience and good track record.

Within expectations. Faber’s net profit of RM36.0m for 1HFY12 accounted for about 47% and 56% of our and consensus FY12 forecasts respectively. While the numbers beat consensus projections, these were in line with our expectation as our forecast was for better performance in 2HFY12, attributed to heightening activities in relation to its HSS concession and higher progress billings at its property division. Revenue ticked up by 4.5% y-o-y as the absence of contribution from its IFM contracts in Abu Dhabi - which were terminated in mid-2011 - was mitigated by the robust revenue growth from its property division. This division’s revenue surged 49% y-o-y owing to higher progress billing from the ongoing development on Phases 4 and 5 of its Laman Rimbunan project. Meanwhile, group net profit was 17.4% higher y-o-y, in line with the higher revenue as well as improved margins, boosted by contribution from the property division, which generally fetches margins than its IFM business. Consequently, EBIT margin widened to 16.9% in 1HFY12 from 15.0% in 1QFY11.

Still no sign of contract renewal. When Faber’s 15-year HSS concession expired on 28 Oct 2011, the Government had extended the concession period for 6 months up to 28 April 2012. However, on 27 April 2012, Faber was informed that the company will continue to execute the existing concession until a new one is signed. We gather that apart from Faber, two other concession holders are also facing the same situation. We believe that Faber has done what is needed to secure a renewal but the decision ultimately rests with the Government. Despite the prolonged delay in renewing the concession, we reiterate our view that the company would eventually renew it, especially in view of its vast experience and solid track record.

Maintain Trading Buy. We maintain our forecast and Trading Buy recommendation on Faber at the unchanged FV of RM2.34, based on a 10% discount to our SOP valuation. Our FY12 and FY13 forecasts are premised on the assumption that the concession would be renewed based on the existing terms. At the current price, the stock trades at 6.1x FY12 and 5.6x FY13 earnings and offers an attractive dividend yield of 6.2%.

Source: OSK