INVESTMENT HIGHLIGHTS

• Favelle Favco’s reported 1QFY18 profit decreased by - 48.5%yoy to RM5.5m

• Normalised net profit excluding exceptional items at +RM17.8m

• Current orderbook at RM400m as at 18 May 2018

• The bulk of the orderbook from various product segments

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

Largely within expectations. Favelle Favco’s 1QFY18 reported earnings declined by -48.5%yoy to RM5.5m. Excluding impairments, forex losses and losses on derivatives, the company’s normalised quarterly earnings amounted to RM17.8. 3MFY18 earnings came in largely within estimates, accounting for 23% of FY18 earnings forecasts.

Current orderbook of RM400m. As at 18 May 2018, the group’s outstanding orderbook stood at approximately RM400m (previously RM455.9 as at 20 February 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 - 28 May 2018