Stock Name: FABER
Company Name: FABER GROUP BHD
Research House: HWANGDBS
Faber Group Bhd
(Jan 13, RM2.19)
Downgrade to fully valued at RM2.63 with reduced target price of RM2 (from RM2.90): Faber announced that the two major facilities management (FM) contracts in the UAE worth a total of RM184 million will not be renewed by its client, Western Region Municipality (WRM). The contracts are due to expire in 2Q11. It is understood that there is a change in management at WRM and the new management is revisiting the contracts.
Slashed FY11F-12F earnings by 29%-45% to account for the non-renewal of the contracts (resulted in 18%-30% cut of earnings). Taking a conservative stance, we are also cutting our new contract assumptions in the UAE (which drags down earnings by another 11%-14%). Thus, FM business in the UAE is no longer the second major contributor to earnings; its share of profit before tax is expected to shrink to 4% in FY12F from 38% in FY10F.
With a downgrade to fully valued (from hold), the sum-of-parts-based target price is reduced to RM2 (from RM2.60). Unless Faber secures the renewal or new contracts, we think there will be no major earnings driver in the near term. We gathered that Faber is bidding for several military hospital contracts in the UAE but no details are available and we do not expect the size of the contracts to be significant.
Furthermore, there is limited earnings visibility given the uncertainty over the renewal of the hospital support service (HSS) concession which is expiring in October 2011. While we think the risk of not getting the HSS concession renewed is low, Faber has yet to announce any indication of the renewal which should have been known in October 2010. ' HwangDBS Vickers Research, Jan 13
This article appeared in The Edge Financial Daily, January 14, 2011.
Company Name: FABER GROUP BHD
Research House: HWANGDBS
Faber Group Bhd
(Jan 13, RM2.19)
Downgrade to fully valued at RM2.63 with reduced target price of RM2 (from RM2.90): Faber announced that the two major facilities management (FM) contracts in the UAE worth a total of RM184 million will not be renewed by its client, Western Region Municipality (WRM). The contracts are due to expire in 2Q11. It is understood that there is a change in management at WRM and the new management is revisiting the contracts.
Slashed FY11F-12F earnings by 29%-45% to account for the non-renewal of the contracts (resulted in 18%-30% cut of earnings). Taking a conservative stance, we are also cutting our new contract assumptions in the UAE (which drags down earnings by another 11%-14%). Thus, FM business in the UAE is no longer the second major contributor to earnings; its share of profit before tax is expected to shrink to 4% in FY12F from 38% in FY10F.
With a downgrade to fully valued (from hold), the sum-of-parts-based target price is reduced to RM2 (from RM2.60). Unless Faber secures the renewal or new contracts, we think there will be no major earnings driver in the near term. We gathered that Faber is bidding for several military hospital contracts in the UAE but no details are available and we do not expect the size of the contracts to be significant.
Furthermore, there is limited earnings visibility given the uncertainty over the renewal of the hospital support service (HSS) concession which is expiring in October 2011. While we think the risk of not getting the HSS concession renewed is low, Faber has yet to announce any indication of the renewal which should have been known in October 2010. ' HwangDBS Vickers Research, Jan 13
This article appeared in The Edge Financial Daily, January 14, 2011.
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