INVESTMENT HIGHLIGHTS

• Favelle Favco’s 1QFY19 reported earnings surged by >100%yoy to RM14.8m

• Earnings cushioned by revenue contribution from Intelligent Automation of RM22.9m

• Current orderbook at RM557m as at 23 May 2019

• Earnings expected to improve in 2HFY19 given most crane deliveries are during the said period and beyond

• Maintain BUY with an unchanged target price of RM2.89

Broadly within expectations. Favelle Favco’s 1QFY19 reported earnings surged by >100%yoy to RM14.8m. Despite recording higher revenue due to increase in sales; Favco’s earnings year-overyear came in broadly within expectations at 19% of our FY19 earnings forecast. Intelligent Automation segment contributed RM22.9m in revenue for Favelle Favco in 4QFY18.

Current orderbook of RM557m. As at 23 May 2019, the group’s outstanding orderbook stood at RM557m (previously RM563m as at 20 February 2019) 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. FY19-20F earnings estimates maintained for now as we opine that the recent contract wins will contribute positively to Favco’s earnings given that most delivery period are slated to be in the 2H of FY19.

Maintain BUY with an unchanged TP of RM2.89. We are still maintaining our BUY recommendation of Favco with an unchanged TP of RM2.89 per share. Our target price is based on EPS19 of 36.1sen pegged to a PER19 of 8.0x. The average PER of its Asian regional peer’s is 11x. We continue to be positive on Favco given its: (i) effort in increasing Tower crane rental fleet to improve rental income globally; (ii) net cash position and; (iii) consistent dividend payout translating into a attractive FY20F dividend yield of 5.2%

Source: MIDF Research - 29 May 2019