Highlights

• A new era. In Oct 2014, Faber completed the merger with Opus and PROPEL, transforming the enlarged entity into Malaysia’s largest and fully integrated Asset & Facilities Management (AFM) player. Its assets jumped more than 3- fold from RM836m to RM2.6bn.

• Driven by Opus. Infra consultant Opus is now the largest contributor to Faber at 53% of revenue and 74% of gross profit. Growth is expected to be strongest in Malaysia and UK, flattish in NZ and Canada while Australia will remain challenging. We view Opus as a good proxy to the global infra scene with higher margins vis-à-vis a typical contractor and no building material price risk.

• PROPEL-ling ahead. More than 60% of PROPEL’s revenue comes from a stable portion, mainly from the maintenance of PLUS owned highways. It recently secured a pavement overlay contract from PLUS which would add RM80-100m in annual revenue to its recurring income. PROPEL is also looking at pavement contract works from several upcoming highways and utilities relocation for the MRT2 and LRT3.

• New lease of life. Faber recently inked a new concession agreement (CA) for its hospital support services which will last another 10 years. While maintaining its 100% stake for the Northern Peninsular concession, this was cut to 40% for East Malaysia, a move that has been widely known.

• Synergizing it. Given the complimentary nature between each of its 3 key divisions, we see ample cross selling opportunities. Faber is also in a good position to leverage on its parent-co, UEM for projects which include highways in Malaysia and Indonesia.

Risks

• Infra spending slowdown in NZ, Malaysia, Canada, UK and Australia would impact Opus.

Forecasts

• We project stable earnings growth of 5%, 10% and 8% for FY15-17 respectively, implying 3 year CAGR of 8%.

Rating

• Initiate with BUY, RM4.76 TP (+43% total return)
• Faber offers investors the best of both worlds - a base of recurring earnings for stability, coupled with the growth potential from Opus which has a global presence. Its balance sheet is also solid with a net cash position (RM0.88/share).
• We expect further rerating once investors realise that Faber is no longer merely a hospital concession play but has evolved into a larger full fledge AFM provider.

Valuation

• Our TP of RM4.76 is based on the SOP method which implies FY15-17 P/E of 16.6x, 15.1x and 14x, for FY15-17 inline with the “mid-teen” multiples for companies with stable concessions and large cap construction stocks.
• Dividend yield is also decent at 4-5% for FY15-17, bringing total potential return to 42.5%.

Source: Hong Leong Investment Bank Research - 9 Apr 2015