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Quarterly Result Commentary - Favelle Favco Berhad - KapitalWise
Favco's quarterly results have mixture of both good and bad. Overall, we can see the management is making good progress with regards to profit generation (in terms of margin, not absolute) in a challenging environment. Here are some key takeaways:
Negatives:
- You must have noticed we did not discussed anything about cash flow generation in the introduction. Yes, the cash flow generation is poorer (but still in double digit range). When compared cumulative six months result with previous six months, the Fund from Operations decreased from RM34.2m to RM53.6m (Fund from Operations margin decreased from approx. 27% to 21%). The Free Cash Flow declined from RM43.6m to c. RM80m.
- Order book declined from Q1 RM605m to RM571m (5.6% declined).
- Overall, the revenue declined was due to bad performance in foreign sales while partially offset by robust domestic demand.
Positives:
- Despite
- Given its already low leverage, Favco's management decided to reduce its leverage further. Debt decreased from RM64m to RM28 (56% decreased). The justification could be its high cash holding which management attempts to cut its unncessary bank borrowing.
- Despite the debt repayment, cash went up by 9% in its recent quarter, from RM334m to RM365m.
To summarise, the outlook for Favco is neutral (short term) but positive in the medium term as as we believe negative factors might dominate the positives for a while. However, we are of the opinion that its low relative valuation provides a good investment opportunity with good upside potential (to recap, our relative valuation only focus on multiple discount while igoring the potential multiple expansion. Hence the upside potential could be higher but we are being conservative in our estimation). It is currently trading at close to its support, low PE ratio of around 6x, high cash holdings and good dividend yield (which currently the firm has good dividend coverage, we would assess the sustainability in its upcoming financials and report whether there is material change).
Feel free to comment and contact me with any contradictory views.
Thanks and Happy Trading,
KapitalWise
- Given its already low leverage, Favco's management decided to reduce its leverage further. Debt decreased from RM64m to RM28 (56% decreased). The justification could be its high cash holding which management attempts to cut its unncessary bank borrowing.
- Despite the debt repayment, cash went up by 9% in its recent quarter, from RM334m to RM365m.
To summarise, the outlook for Favco is neutral (short term) but positive in the medium term as as we believe negative factors might dominate the positives for a while. However, we are of the opinion that its low relative valuation provides a good investment opportunity with good upside potential (to recap, our relative valuation only focus on multiple discount while igoring the potential multiple expansion. Hence the upside potential could be higher but we are being conservative in our estimation). It is currently trading at close to its support, low PE ratio of around 6x, high cash holdings and good dividend yield (which currently the firm has good dividend coverage, we would assess the sustainability in its upcoming financials and report whether there is material change).
Feel free to comment and contact me with any contradictory views.
Thanks and Happy Trading,
KapitalWise
http://kapitalwise.blogspot.my/2016/09/quarterly-result-commentary-favelle.html
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Be the first to like this. Showing 3 of 3 comments
However,the deduction of 34m order can produce 166m revenue. I think the effect of low orderbook has became less significant or there might be new order comes in without any announcement by the management. This is my opinion. :)
2016-09-13 08:24
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Last time i read the analysis for. Research house, they said favco's biggets problem is failing to get any significant new job while old job is coming to end. Dont know whether now this problem still persisst ..?
2016-09-12 12:38