INVESTMENT MERIT
- Recovering. Faber’s bottom line has improved since a
hiccup in 3Q11 when it recognised additional costs of RM44.5m for works
completed in UAE. In addition, an amount of RM12.9m was provided for delay in
the collection of trade receivables from a principal, Western Region
Municipality. In its latest 2Q12 financial results, Faber registered a 2Q12 net
profit of RM19.5m, +18.5% QoQ or +18.4% YoY, bringing the 1H12 net profit to
RM36.0m, +17.5% YoY. Going forward, we believe the profitability of Faber will
be driven by its principal businesses and also by the potential writeback of
the RM12.9m impairment loss in 4Q12 or 1Q13 as the chances of recoverability have
improved significantly.
- Concessions
renewal. It was reported that the
upcoming year will be even more profitable for the group on the back of it
possibly securing a hospital support service concession deal with the
government by this year-end. This is likely achievable based on Faber’s track
record with the government. Reassuringly, two other concession holders –
Pharmaniaga and Padiberas – have also managed to secure concession renewals
with the government of late.
- Healthy organic
growth. Before finalising the concession renewal, Faber has been given the
rights to continue carrying its existing
concession under Integrated Facilities Management (IFM) Management. As
such, its business is running as usual. It plans to grow its non-concession IFM
income by expanding into the private healthcare sector. Organic growth in the
IFM segment, which accounts for >80% of its revenue, is guided to be at
3%-4% p.a..
- Property division –
a profit booster. Revenue from this
segment should surpass RM157m in 2011 driven by its existing projects in Taman
Desa and Kepong. The group also plans to launch two other projects with a total
Gross Development Value (GDV) of RM414m in Persiaran Gurney, Kuala Lumpur and
Lucky Heights II, Kota Kinabalu in 4Q12. Going
forward, the group is likely to grow this segment via pocket-size
property developments in the Klang Valley.
- Dividends. Faber has been paying 8 sen gross dividend
per share (DPS) for the last two financial years, translating into payout
ratios of 27.6%-35.4%. We understand that the group plans to increase its dividend payout after paring down its
RM77.58m loan stocks in 3Q12. Based on our cashflow projections, we believe
that the group will be able to increase its gross DPS to 10 sen, or 7.5 sen
net, translating into a net dividend yield of 5.7% and a payout ratio of c.
40%.
- Due for a rerating? Faber is traded at 7.6x FY11A PER and 6.7x
FY12E PER, which are undemanding compared to the small cap healthcare and waste
management stocks’ FY11-FY12 PER of 10x-9x. In addition, the recent inclusion
of IHH Healthcare into the FBMKLCI has also boosted the sector's valuation.
However, we recognize that the stock will only stage a significant
re-rating if it is granted the concession renewal. At this juncture, we only value the stock at
RM1.41 based on the FBMSC Index FY12E PER of 7.0x on our FY13E EPS projection
of 20.2 sen. Should the concession be renewed, we believe the stock could be
rerated to RM1.81, implying 9x FY13E PER.
TECHNICALS
- Resistance: RM1.45 (R1), RM1.60 (R2)
- Support: RM1.28 (S1), RM1.25 (S2)
Comments: Faber’s persistent downtrend appears to be coming
to an end with the share price failing to make new lows since September last
year. The share price is just above a strong support line at RM1.28, and looks
poised for a rebound. The MACD is in agreement is indicating a shift of
momentum from negative to positive.
BUSINESS OVERVIEW
Faber Group Bhd was formed through a merger between Merlin
Hotels Malaysia Bhd and Faber Union Sdn Bhd in 1972 and later on was
established as Faber Group in 1990. It is now a leading player in the
Integrated Facilities Management (IFM) and has expanded into the Property
Development Sector. The group provides IFM services to hospitals, commercial
and residential properties both in the public and private sectors and is
Malaysia’s largest Hospital Support Services company for over 70 government
hospitals and 400 healthcare institutions.
It also has a growing property solution division that has
established itself in the Taman Desa development region and is now actively
expanding its portfolio. Faber Group currently extends its services to
hospitals and hotels in Singapore, Indonesia, Dubai, Abu Dhabi and several
parts of India.
BUSINESS SEGMENTS
Integrated Facilities Management: Biomedical engineering
maintenance services, Cleansing Services, Clinical Waste Management Services,
Facility Engineering Maintenance Services, Linen and Laundry Services,
Maintenance Management Information Systems Property Development: Condominium,
Commercial and Residential developments. Completed portfolio includes
developments in Taman Desa (current projects are Armada Villa and Villa Prima);
Laman Rimbunan, Kepong (Areca Residence) and East Malaysia.
Source: Kenanga
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