In our view, Khazanah will use Faber as the listed vehicle to monetise the embedded value of Pantai's concession, while also giving the listed entity immediate enlargement in market capitalisation, scale and market penetration. Based on our estimates, the merger with Pantai could see FM revenue rising by 21% with a higher market share of 68%, against 50% currently, of the local healthcare FM business.

Faber has been making inroads in the non-healthcare FM segment, which accounted for 3% of FY2009 revenue. While contract wins YTD for this segment have been small, it has the potential to expand. It has clinched cleansing works for the LRT worth RM4 million per annum (pa) and also potentially a RM2 million pa contract for Tesco. On the overseas front, its Dh66 million (RM57.5 million) contract in Abu Dhabi to provide civil, maintenance and electrical maintenance services for low-cost housing has been renewed for another year and it recently clinched a RM20.4 million new contract in Abu Dhabi. We estimate every RM50 million increase in new UAE contracts pa will lift FY2010F/11F EPS by 7% to 8%. In India, Faber was awarded its maiden contract with Fortis, but the contract is small at just RM2.2 million pa for three hospitals. More importantly, this puts it in good stead to bid for more contracts with Fortis, which has 37 hospitals in North India.

Our sum-of-parts-derived target price is RM3.55, implying 13.6 times CY2011F EPS and 2.4 times CY2011F BV. The 2Q2010 results due out early August are expected to show sequential improvement buoyed predominantly by property. We expect a stronger 2H2010 supported by contributions from recent FM wins and stronger property earnings (recent RM136 million Taman Desa launch is 70% sold).

This should underpin confidence on meeting its 2010 KPIs. Faber should be notified regarding the potential renewal of its concession agreement in October 2010, another potential catalyst. ? HwangDBS Vickers Research, July 14

This article appeared in The Edge Financial Daily, July 15, 2010.