KEY INVESTMENT HIGHLIGHTS

• Favelle Favco’s 4QFY19 normalised earnings came in within estimates at RM26.5m

• The year-over-year increase in revenue was attributable to higher sales of cranes during the quarter

• 52.6% of revenue was tilted towards overseas sales

• Current orderbook at RM582m as of 26 February 2020

• Orderbook includes RM68m from Intelligent Automation

• FY20F earnings raised by +4.89% to RM94.3m

• Maintain BUY with a revised TP of RM3.41 per share

4QFY19 earnings within estimates at RM26.5m. Favelle Favco Berhad’s (Favco) 4QFY19 normalised net profit came in at RM26.5m. This brings its FY19 earnings to RM81.3m which is within our full-year earnings estimates at 102.2%. Comparing against 4QFY18, revenue and earnings grew by +30.1% and +8.0%yoy respectively while on a quarterly sequential basis, revenue surged by +101.2% and earnings increased by +12.6% correspondingly. The increase in revenue and earnings during the quarter was mainly due to higher sales of cranes recognized during the quarter.

Revenue mainly from overseas sales. Favco’s year-to-date revenue remains heavily reliant on its overseas cranes sales which make up almost 52.6% of its total revenue. That said, the increasing contribution from Intelligent Automation which contributed to 22.8% of its revenue or RM158.45m year-to-date is expected to balance it out. Going forward, Management expects to increase the contribution coming from its tower crane rentals. The rentals which are currently only applicable for its clients in Europe makes up about 12-15% of its total revenue at this juncture.

Current orderbook of RM582m. As at 26 February 2020, the group’s outstanding orderbook stood at RM582m (previously RM564m as at 20 November 2020) 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 62%. The remainder of 26% is from the shipyard, construction and wind turbine industry. The orderbook also consist of RM68m/12% from Intelligent Automation.

Earnings impact. We have raised our FY20F earnings estimate by +4.89% to RM94.3m as we incorporate higher revenue from tower crane rentals going forward.

Maintain BUY with a revised TP of RM3.41. Post earnings revision, we are maintaining our BUY recommendation on Favco with a revised target price of RM3.41 (from RM3.22 previously). Our TP is derived from pegging an unchanged PER20 of 8.0x to EPS20 of 42.6sen. We believe in Favco’s (i) stable orderbook mix with infrastructure-based projects; (ii) net cash position and; (iii) consistent dividend payout translating into an attractive FY20F dividend yield of 6.5%.

Source: MIDF Research - 27 Feb 2020