INVESTMENT HIGHLIGHTS

• Favelle Favco’s 3QFY18 reported earnings surged by +55.5%yoy to RM31.7m

• Normalised earnings excluding exceptional items within estimates at RM34.4m

• Maiden revenue contribution from Intelligent Automation of RM26m

• Current orderbook at RM515m as at 21 November 2018

• The bulk of the orderbook from various product segments

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

Within expectations. Favelle Favco’s 3QFY18 reported earnings surged by +55.5%yoy to RM31.7m. Excluding impairments, forex losses and losses on derivatives, the company’s normalised quarterly earnings amounted to RM34.4m. 9MFY18 normalised earnings came in within estimates at RM38.3m accounting for 71.4% of our FY18 earnings forecasts. 3QFY18 also marks the maiden revenue contribution from its Intelligent Automation segment which was acquired back in 2QFY18. Intelligent Automation segment contributed RM26m in revenue for Favelle Favco.

Current orderbook of RM515m. As at 21 November 2018, the group’s outstanding orderbook stood at RM515m (previously RM427m as at 23 August 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 of 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 as we have factored in all the positives.

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 Nov 2018