Favelle Favco Bhd
(March 5, RM3.10)
Initiated coverage with neutral call and target price (TP) of RM3.20. We re-initiate coverage of Favelle Favco Bhd (FFB) with a TP based on its forecast financial year ending Dec 31, 2015 (FY15F), and FY16F earnings per share of 32 sen pegged to price-to-earnings ratio (PER) of 10 times.

FFB, a 61%-owned subsidiary of Muhibbah Engineering (M) Bhd, is a niche integrated international manufacturer of customised cranes, operating in the oil and gas, construction and port industries.

Our valuation at PER 10 times is based on the average PER of the consensus value (eight times) and Top 20 lower-tier crane manufacturers in the world’s PER of 11 times because we feel FFB has no close listed local competitor and is of a size sandwiched between top players.

As at November 2014, the total secured order book outstanding is approximately RM1.091 billion, providing earnings visibility of at least two years.

FFB’s main strength is in its ability to manufacture cranes accommodating customers’ unique specifications and requirements.

FFB was ranked 18th in publishing house KHL Group’s ICm20 ranking of the Top 20 largest crane manufacturers globally by revenue in 2013. FFB is the only crane developer to have achieved this ranking in Malaysia and Southeast Asia.

FFB cranes participated in the construction of nine out of 10 of the world’s tallest buildings. — InterPacific Research, March 5

This article first appeared in The Edge Financial Daily, on March 6, 2015.