Favelle Favco Bhd
(May 26, RM2.82)
Maintain buy with revised target price of RM3.30 per share: Favelle’s earnings for the first quarter ended March (1QFY15) surged by 87.4% year-on-year (y-o-y) to RM22.5 million, in line with expectations. Earnings accounted for 25.5% of our and 25.6% of consensus full year forecasts.

Favelle’s 1QFY15 earnings growth was mainly contributed by its sales activities inside Malaysia which made up approximately 55% of its revenue. Further supporting growth was its lower distribution expenses, lower administrative expenses and lower tax rate.

Subsequently, Favelle’s profit before tax and profit after tax margins expanded by 4.6 percentage points (ppts) and 5.2 ppts y-o-y respectively.

As at May 20, 2015, the group’s outstanding order book stood at RM967 million. The majority of the order book consists of oil and gas cranes for offshore exploration and production activities. The remainder is from the shipyard, construction and wind turbine industry.

We maintain our FY15 earnings as we believe the purchase orders received last year will support the growth for this year. However, we are revising downwards our FY16 earnings by 2.7% due to the lower purchase orders received this year. Purchase orders usually have a lead time of two years.

Furthermore, the order book as at May 20 of RM967 million is 13.1% lower compared with RM1.1 billion for the same period last year. — MIDF Amanah Research, May 26

This article first appeared in The Edge Financial Daily, on May 27, 2015.