Federal International Holdings Bhd ("FIHB") earnings is set to more than double in FY19 following the remaining 40% acquisition of Pembinaan Masteron Sdn Bhd ("PMSB"). Current price weakness appears as buying opportunity with target price of RM0.63 based on 8x PER FY19 as per its closest peers.

PMSB which is now wholly-owned by FIHB has a solid construction orderbook of RM373m with unbilled value of RM243m and will enhance FIHB's earnings for the next 2 years. Meanwhile, RM415m contracts are also in the pipeline further providing earnings visibility for the next 4 years. To date, Masteron Group has an ongoing and planned development projects worth RM3b in Gross Development Value. 

The synergistic acquisition has helped FIHB to position themselves as a premium builder cum renovation fit-out contractor. In 1QFY19, FIHB secured RM22m of interior fit-out ("IFO") contracts from its construction arm including the fit-out of Sheraton 4 Points Hotels in Kuala Lumpur. 

Furniture manufacturing division is progressing well as FIHB collaborated with a local contractor to set up manufacturing operations in India. FIHB expects to service at least 30 new Starbucks stores per year in India as it is now one of Starbucks' fastest growing market. Meanwhile, FIHB is also seeking opportunity in China as Starbucks plans to open 600 new stores annually in China. 

Balance sheet remains manageable with gearing of 0.16x. EPS is projected to more than double in FY19 backed by strong construction orderbook and higher margins from Starbucks business especially in India. Dividend yields are expected at 2.4% and 4.2% in FY19 and FY20 respectively buoyed by higher profits. 

Source: Rakuten Research - 10 Dec 2018