We attended FIHB’s results briefing yesterday and it seems though the share price moving upwards after the quarterly results were released has some good reasons to it. Being under-researched, we felt that this counter is undervalued and have yet to price in future revenue streams.

Gone were the days where FIHB’s core business revolves around providing furniture and fittings to Starbucks stores. With the recent results, clearly it shows that their core business had shifted to construction. The table below provides the revenue & profit contribution from each segment.

Clearly, the construction sector led the way and that perhaps is the reason why the company changed its name from from Federal Furniture Holdings Berhad (FFHB) to Federal International Holdings Berhad (FIHB).

But based on the results briefing yesterday, the company plans to expand its business outside Malaysia by acquiring companies in the same industry. Hence, the word “International” was used as a replacement for the name change.

Future Revenues

After acquiring a 100% of Masteron Sdn Bhd, it had became pretty obvious that the revenue and profit would be heavy on the construction segment. The management advised that there are a total of RM 163 million of unbilled order book as of 31st Dec 2018 coupled with RM 830 million worth of contracts under negotiations.

The table below was provided by their investor relations team and shows the order book as of 31 December 2018 together with the unbilled amounts followed by upcoming estimate for contracts in the year 2019 and 2020.

Unbilled Order Book

Upcoming Contracts to be awarded by Masteron 2019 – 2020

All the contracts under negotiations are coming from their subsidiary Masteron. We could almost be sure that if business goes well for the company, the contracts will fall on the hands of FIHB’s construction arm. But obviously the dependency on one single developer shows risk when market turns bad.

Manufacturing Division

Manufacturing contribution had became less for the company but still contributes close to 30% in terms of profit before tax. Furniture manufacturing margins are much higher compared to construction and this is why we shouldn’t leave it out of the picture just yet.

The manufacturing of fixtures for Starbucks continues to expand into India. FIHB has established a local manufacturing facility in Bangalore and they are tapping on the growth of Starbucks Coffee houses.

It is expected that India with open 30 Starbucks Coffee annually and FIHB is the sole manufacturer for Starbucks in India.

We estimate that this segment would continue to add 20% of total profit along the way and likely to be reduced and possibly be integrated to their own property arm.

Valuation

We believe that the share price is undervalued at the moment due to minimum coverage on the counter itself. Understanding from the results briefing yesterday, management still had a hard time after a name change where the public still sees it as a furniture manufacturer.

What we can’t deny is that there had been a change and the revenue projected coming in would eventually turn into profits and that doesn’t keep the share price low at what it is now.

We foresee that the next 2 quarters would see profits remained stable but the breakthrough would likely be in FY2020 as more projects get completed and the final bills paid up.

In fact we believe that FY2019 is the time to incubate and confirmed the upcoming RM830 million order book. The execution on the property market arm by their subsidiary Masteron still plays a huge role in paving the right path going forward. The pile of good news coming up could push the share price higher from what it is now.

We believe that the price rise has just began and eventually the market would start paying a higher market cap value for the company. NTA is at 90 cents and we set 65% of NTA as our target price for now @ RM0.585.