Thursday 29 November 2012

Faber Group Bhd - So far so good


INVESTMENT MERIT
• 9M12 results comment. Of late, Faber reported a 9M12 revenue and net profit of RM623.7m and RM55.0m, respectively. The 9-month net profit accounted for 75.5% of the consensus estimate and 78.1% that of ours. We are upbeat on this good set of results. 

• In 3Q12, we saw higher progress billings from Vila Prima in Taman Desa while Integrated Facilities Management (“IFM”) Concession recorded a lower revenue from its clinical waste management services and linen and laundry services due to the lower bed occupancy rates. The lower rates are comprehendible as patients tend to postpone elective medical procedures during Ramadan and the  Hungry Ghost Festival. 

• Segmental breakdown. During the quarter, IFM accounted for 90% of the group’s revenue and pre-tax profit with the  property division contributing the remaining 10%. 71% of IFM’s revenue and 54% of IFM’s pre-tax profit were attributed to its concession business. As we mentioned before, while the group has yet to secure a concession renewal, it is still business as usual here.

• Achievement of the headline KPI. The group has set two main KPIs early this year - Revenue Growth of 10%-12% and Return on Equity (“ROE”) of 15%-17%. During the first 9 months, the group recorded an annualised revenue growth of -5.5% and ROE of 10.9%. These figures were lower than its KPIs. We understand that the negative annualized revenue growth was mainly due to the delay in the commencement of the IFM’s Non-concession new projects and the timing on the progress billings for the property development projects. Efforts are being intensified to improve contributions from all the business divisions and management reckoned that the current negative annualized revenue growth will narrow for the full year results. In any case, the group expects to meet its targeted ROE for the year. We share this belief as this is not entirely impossible, especially with a good dividend payout.

• 20 sen special dividend.  True enough, Faber has recommended a special interim dividend of 20 sen less 25% tax, translating into a net yield of 10%. Apart from improving the ROE, the move is also inline with the group’s aspiration to increase its dividend payout after paring down its RM77.58m loan stocks in 3Q12, which we had highlighted earlier. As such, the stock is still able to offer an attractive dividend yield despite its recent upswing. 

• One of the cheapest healthcare stocks in town. Faber is currently trading at 8.8x FY11A PER and 7.8x FY12E PER, which are undemanding compared to the small cap healthcare and waste management stocks’ FY11-FY12 PER of 9x-10x. We reiterate our Trading Buy call with an unchanged target Price of RM1.81.

TECHNICALS
• Resistance: RM1.57 (R1), RM1.66 (R2)
• Support: RM1.36 (S1), RM1.26 (S2)
• Comments:  After rebounding from the RM1.26 support, the share price now appears to be facing strong resistance at the doward sloping trend line. The MACD indicator is supportive of a move higher, and should the trend line resistance be taken out, FABER could potentially look to test the RM1.66 and RM1.80 levels next.

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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