Stock Name: FABER
Company Name: FABER GROUP BHD
Faber Group Bhd
(Oct 5, RM1.28)
Maintain market perform with unchanged fair value of RM1.51: On Sept 23, we wrote about the reported start of the long awaited renewal process for the three concessionaires, including Faber Medi-Serve Sdn Bhd. We understand that Faber Medi-Serve submitted the request for proposal (RFP) on Oct 3. We are currently uncertain about the process timeline, but we believe extension letters will be given if the renewal is not completed by Oct 28.
We are confident of Faber's ability to retain its service areas in Peninsular Malaysia given its 15-year track record. We also understand that the three concessionaires, including Faber Medi-Serve, Pantai Medivest Sdn Bhd and Radicare (M) Sdn Bhd, are not seeking to expand beyond their existing service areas.
We believe there is a risk that new parties may emerge in Sabah and Sarawak. This was widely speculated in the market a year ago and rumours since resurfaced, but as yet remain unconfirmed. Even if this happens, via new joint ventures (JV) between Faber and the new parties, we believe Faber would not settle for less than a 51% stake. Moreover, we recall previous discussions with management about the risk ' Faber Medi-Serve's service infrastructure is already established in Sabah and Sarawak, and therefore the company would likely stand a good chance of remaining a subcontractor to each JV.
Faber still has outstanding claims of about RM120 million from the UAE contracts. We have not factored this into our forecasts. In our view, management may think twice about new business development in the region. On the other hand, India appears to be progressing well, with 41 Apollo hospitals and five Fortis hospitals now signed up, in addition to the annual IFM contract for Hyderabad airport.
We make no changes to our forecasts for now, although we highlight that there is potential risk in our assumptions for both the concession renewal and the UAE claims. For now, our forecasts reflect the assumption of a third party brought in as a 49% JV partner for the Sabah and Sarawak service areas.
The risks to our view include: (i) failure to secure an extension to the concession agreement; and (ii) lower-than-expected service fees.
As we await the completion of the renewal process, we believe the stock will face continued selling pressure on risk aversion and at best perform in line with the market in the near term. We maintain our 'market perform' call on Faber with an unchanged sum-of-parts fair value estimate of RM1.51 per share. ' RHB Research, Oct 5
This article appeared in The Edge Financial Daily, October 6, 2011.
Company Name: FABER GROUP BHD
| Research House: RHB | Price Call: HOLD | Target Price: 1.51 |
Faber Group Bhd
(Oct 5, RM1.28)
Maintain market perform with unchanged fair value of RM1.51: On Sept 23, we wrote about the reported start of the long awaited renewal process for the three concessionaires, including Faber Medi-Serve Sdn Bhd. We understand that Faber Medi-Serve submitted the request for proposal (RFP) on Oct 3. We are currently uncertain about the process timeline, but we believe extension letters will be given if the renewal is not completed by Oct 28.
We are confident of Faber's ability to retain its service areas in Peninsular Malaysia given its 15-year track record. We also understand that the three concessionaires, including Faber Medi-Serve, Pantai Medivest Sdn Bhd and Radicare (M) Sdn Bhd, are not seeking to expand beyond their existing service areas.
We believe there is a risk that new parties may emerge in Sabah and Sarawak. This was widely speculated in the market a year ago and rumours since resurfaced, but as yet remain unconfirmed. Even if this happens, via new joint ventures (JV) between Faber and the new parties, we believe Faber would not settle for less than a 51% stake. Moreover, we recall previous discussions with management about the risk ' Faber Medi-Serve's service infrastructure is already established in Sabah and Sarawak, and therefore the company would likely stand a good chance of remaining a subcontractor to each JV.
Faber still has outstanding claims of about RM120 million from the UAE contracts. We have not factored this into our forecasts. In our view, management may think twice about new business development in the region. On the other hand, India appears to be progressing well, with 41 Apollo hospitals and five Fortis hospitals now signed up, in addition to the annual IFM contract for Hyderabad airport.
We make no changes to our forecasts for now, although we highlight that there is potential risk in our assumptions for both the concession renewal and the UAE claims. For now, our forecasts reflect the assumption of a third party brought in as a 49% JV partner for the Sabah and Sarawak service areas.
The risks to our view include: (i) failure to secure an extension to the concession agreement; and (ii) lower-than-expected service fees.
As we await the completion of the renewal process, we believe the stock will face continued selling pressure on risk aversion and at best perform in line with the market in the near term. We maintain our 'market perform' call on Faber with an unchanged sum-of-parts fair value estimate of RM1.51 per share. ' RHB Research, Oct 5
This article appeared in The Edge Financial Daily, October 6, 2011.
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