This article first appeared in The Edge Financial Daily on November 29, 2018
Favelle Favco Bhd
(Nov 28, RM2.30)
Maintain buy with an unchanged target price (TP) of RM2.92: Favelle Favco Bhd’s third quarter of financial year 2018 (3QFY18) reported earnings surged by 55.5% year-on-year (y-o-y) to RM31.7 million. Excluding impairments, foreign exchange losses and losses on derivatives, the company’s normalised quarterly earnings amounted to RM34.4 million.
Nine months of FY18 (9MFY18) normalised earnings came in within estimates at RM38.3 million accounting for 71.4% of our FY18 earnings forecasts.
3QFY18 also marks the maiden revenue contribution from its intelligent automation segment, which was acquired in 2QFY18. The intelligent automation segment contributed RM26 million in revenue for Favelle Favco.
As at Nov 21, 2018, the group’s outstanding order book stood at RM515 million from the global oil and gas, shipyard, construction and wind turbine industries. However, the majority of the order book still consists of oil and gas cranes for the offshore oil and gas exploration and production activities at 79%. The remaining 21% is from the shipyard, construction and wind turbine industries.
We are making no changes to our earnings estimates at this juncture as we have factored in all the positives.
We are still maintaining our “buy” recommendation with an unchanged TP of RM2.92 per share. Our TP is based on earnings per share of 34.3 sen pegged at a price-earnings ratio (PER) of 8.5 times. The average PER of its Asian regional peers is 11 times.
We believe in Favelle Favco’s change in order-book mix by increasing infrastructure-based projects, net cash position and consistent dividend payout translating into a reasonable dividend yield. — MIDF Research, Nov 28