INVESTMENT MERIT

- Stock surged 58% YTD. Since our Trading Buy call in Sept 2012 at RM1.29, the stock has risen by 75%, outperforming the FBMKLCI index (+1.8%). We believe the share price run up was due to the recent proposed assets divestments by UEM Group Berhad to Faber Group Berhad (“FGB”). With a decent profit in hand and considering the confluence of negative factors affecting the equity market, we advocate investors to take profit.

- Recent proposed corporate exercise priced in. In an announcement to Bursa Malaysia recently, UEM Group Berhad has proposed to dispose of: (i) 100% equity stake each in Projek Penyelenggaraan Lebuhraya Bhd (PROPEL) for a consideration of RM500m via the issuance of 250m new FGB shares at an issue price of RM2.00/FGB share and RM250m cash; and (ii) 100% stake in Opus Group Bhd (OGB) to FGB for a consideration of RM651m via the issuance of 325.5m new FGB shares at an issue price of RM2.00/FGB share. UEM Group’s proposed disposals amounts to an aggregate sum of RM1.15bn via the issuance of 450.5m Faber shares and cash of RM250m. The offer by UEMG to FGB is subject to the later acceptance by 30 August 2013.

- Based on PROPEL FY12 net profit and net assets of RM53.8m and RM146.1m respectively, this deal is valued at 9.3x PER and 3.5x PBV. Propel is mainly involved in infrastructure maintenance, specifically in highway maintenance.

- Based on OGB FY12 net profit and net assets of RM57.5m and RM588.7m respectively, this deal is valued at 11.3x PER and 1.1x PBV. OGB is involved in the asset management of transportation, infrastructure and built environment asset and facilities. OGB currently manages more than 900km of expressways in Malaysia and more than 35,000km of road network overseas.

- Should the proposal go through, we believe the potential for a bumper dividend which we had highlighted previously, would now be unlikely. For illustrative purposes, FGB would be in a net gearing position compared to a net cash position RM174.6m because of the RM250m cash required as consideration.

- Share price fair valued at MYR2.34 for now. Assuming the proposal goes through, FGB net profit and EPS would jump from RM56.3m to RM166.3m and 15.5 sen to 20.4 sen in FY14 (enlarged share base to rise by 450.5m from 363.3m to 813.5m). FGB indicative fair value is RM2.44 based on 11.5x FY14 EPS, at 20% premium to closest peer Protasco 1-year forward PER. We believe the premium attached to Faber is justified considering both OPUS and PROPEL combined earnings base is >25% higher than Protasco, Faber’s closest peer.

SWOT ANALYSIS

- Strength: Multiple revenue options within one value flow.

- Weaknesses: Low switching costs for merchants and banks.

- Opportunities: Growing adoption of electronic payments.

- Threats: Changes in economic and social conditions

TECHNICALS

- Resistance: RM2.50 (R1), 2.68 (S2); Support: RM2.25 (S1), RM2.00

- Comments: FGB’s overall technical picture remains bullish. However, the share price was not spared by the broad market recent sell-off. With the key indicators yet to show any signs of a rebound, the low volume consolidation could cause the share price to drift lower towards RM2.27 and RM2.00 before we expect bargain hunting to emerge.

BUSINESS OVERVIEW

- Faber Group Bhd was formed through a merger between Merlin Hotels Malaysia Bhd and Faber Union Sdn Bhd in 1972 and later on was reestablished as Faber Group in 1990. It is now a leading player in the Integrated Facilities Management (IFM) and has expanded into the property development sector. The group provides IFM services to hospitals, commercial and residential properties both in the public and private sectors and is Malaysia’s largest hospital support services company, servicing over 70 government hospitals and 400 healthcare institutions. Faber Group currently extends its services to hospitals and hotels in Singapore, Indonesia, Dubai, Abu Dhabi and several parts of India.

BUSINESS SEGMENTS

The group offers a wide range of services as below:

- Integrated Facilities Management: Biomedical engineering maintenance services, Cleansing Services, Clinical Waste Management Services, Facility Engineering Maintenance Services, Linen and Laundry Services, Maintenance Management Information Systems

- Property Development: Condominium, Commercial and Residential developments. Completed portfolio includes developments in Taman Desa (current projects are Armada Villa and Villa Prima); Laman Rimbunan, Kepong (Areca Residence) and some projects in East Malaysia.

Source: Kenanga