INVESTMENT HIGHLIGHTS

• 3QFY17 earnings increased by +4.2%qoq contributed by the increase in sales

• Revenue in 3QFY17 increased by 11.3%qoq and 33.0%yoy

• Current orderbook is RM496.3m as at 17 November 2017

• The bulk of the orderbook still consists of oil and gas cranes for the offshore oil and gas exploration and production activities

• Maintain BUY with an unchanged target price of RM2.92

Within expectations. Favco’s 9MFY17 earnings are within our expectations accounting for 79.9% of our and market’s full year forecasts.

3QFY17 earnings improved by +4.2%qoq. Favco’s 3QFY17 earnings grew by +4.2%qoq mainly due to the increase in sales. Favco’s revenue for 3QFY17 grew by 11.3%qoq. Meanwhile, yearon-year, Favco’s revenue increased by 33.0%. Its PBT margin also expanded by +2.0ppts, despite the lower PATANCI margins which contracted by -0.9ppts mainly due to the higher tax rate in 3QFY17.

Current orderbook of RM496.3m. As at 17 November 2017, the group’s outstanding orderbook stood at RM496.3m (previously RM536.4m as at 17 August 2017). Albeit decreasing, the majority of the orderbook still consists of oil and gas cranes for the offshore oil and gas exploration and production activities. The remainder is from the shipyard, construction and wind turbine industry.

Impact to earnings. No change to earnings estimates.

Maintain BUY with unchanged TP of RM2.92. We are still maintaining our BUY recommendation of Favco with an unchanged TP of RM2.92 per share. Our target price is based on EPS18 of 34.3sen pegged to a PER18 of 8.5x. The average PER of its Asian regional peer’s is 11x. We believe in Favco’s (i) change in orderbook mix by increasing infrastructure-based projects; (ii) net cash position and; (iii) consistent dividend payout translating into a reasonable dividend yield.

Source: MIDF Research - 24 Nov 2017