INVESTMENT HIGHLIGHTS

• Favelle Favco’s 2QFY18 reported earnings declined - 43.5%yoy to RM7.3m

• Normalised earnings excluding exceptional items within estimates at RM20.5m

• Current orderbook at RM427m as at 23 August 2018

• Bulk of the orderbook from various product segments

• Maintain BUY with a revised target price of RM2.93

Within expectation. Favelle Favco’s 2QFY18 reported earnings declined by -43.5%yoy to RM7.3m. Excluding impairments, forex losses and losses on derivatives, the company’s normalised quarterly earnings amounted to RM20.5m. 6MFY18 normalised earnings came in within expectation at RM38.3m accounting for 50.4% of our FY18 earnings forecast.

Current orderbook of RM427m. As at 23 August 2018, the group’s outstanding orderbook stood at RM427m (previously RM398m as at 24 May 2018) from the global oil and gas, shipyard, construction and wind turbine industries. However, the majority of the orderbook still consists of oil and gas cranes for the offshore oil and gas exploration and production activities at 79%. The remainder 21% is from the shipyard, construction and wind turbine industry.

Impact to earnings. We are making no changes to our earnings estimates at this juncture.

Maintain BUY with revised TP of RM2.93. We maintain our BUY recommendation of Favco with a revised TP of RM2.93 per share. We tweaked our TP as we roll forward our valuation base year to FY19. The new TP is derived based on EPS19 of 38.6sen pegged to a PER19 of 7.6x (0.5 standard deviation discount to 5- year historical average). The average PER of its Asian regional peer’s is 11x. We like Favco due to (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 - 29 Aug 2018