INVESTMENT HIGHLIGHTS

• 4QFY17 profit before tax increased by +16.4%yoy

• Current orderbook is RM455.9m as at 20 February 2018

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

• Announced FY17 first and final tax exempt dividend of 13.5sen

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

Within expectations. Favco’s FY17 earnings are within our expectations accounting for 96.2% of our and market’s full year forecasts.

4QFY17 profit before tax improved by +16.4%yoy. Favco’s 4QFY17 earnings grew by +16.4%yoy contributed by the higher interest income generated on the group’s cash management. Its PBT margin also expanded by +8.4ppts year-on-year, despite the lower PATANCI margins which contracted by -1.9ppts.

Current orderbook of RM455.9m. As at 20 February 2018, the group’s outstanding orderbook stood at RM455.9m (previously RM496.3 as at 17 November 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 are from the shipyard, construction and wind turbine industry.

Announced FY17 dividend of 13.5sen. Favco announced FY17’s first and final tax exempt dividend of 13.5sen (subject to approval of the shareholders). Despite being lower than its dividend in FY16 of 15.0, the dividend payout is 47.3% which is still higher than our expected payout ratio of at least 30%. However, to maintain a conservative outlook, we revise our dividend for FY18 to 14.0sen.

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. Our Buy recommendation is anchored by: (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 - 28 Feb 2018