INVESTMENT HIGHLIGHTS

• Favelle Favco’s 2QFY19 reported earnings surged by +127.1%yoy to RM16.5m

• Higher revenue contribution from Intelligent Automation of RM50.8m

• Current orderbook at RM562m as at 16 August 2019

• The bulk of the orderbook from various product segments

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

Within expectations. Favelle Favco’s 2QFY19 reported earnings surged by +127.1%yoy to RM16.5m. Excluding impairments, forex losses and losses on derivatives, the company’s normalised quarterly earnings amounted to RM20.4m. This brings its 1HFY19 normalised earnings to RM35.6m which is within our full-year FY19 earnings estimate at 45%. Revenue was higher by +121.8%yoy due to higher sales of both tower and offshore cranes. Meanwhile, Intelligent Automation segment contributed RM50.8m in revenue for Favelle Favco in 2QFY19.

Current orderbook of RM562m. As at 16 August 2019, the group’s outstanding orderbook stood at RM562m (previously RM557m as at 23 May 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 and in 1H of FY20.

Maintain BUY with an unchanged TP of RM2.89. We are still maintaining our BUY recommendation on 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 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 an attractive FY20F dividend yield OF 5.9%.

Source: MIDF Research - 28 Aug 2019