Favelle  Favco’s  1QFY13  earnings  of  MYR10.5m  were  weaker  than expected,  mainly  due  to  higher  taxes  arising  from  a  short  term  timing difference  in  the  tax  treatment  of  certain  subsidiaries. We  reiterate  our BUY  call  as  the  company  has  a  robust  MYR645m  order  book  and  is  a key  beneficiary  of  heightening  domestic  O&G  and  construction activities. Our FV is unchanged at MYR3.35, pegged to 10x FY13 EPS.  
 
- Below  estimates.  Favelle  Favco  (FFB)’s  1QFY13  earnings  of MYR10.5m  (-20.1%  q-o-q,  +1.9%  y-o-y)  were  below  our  expectation, accounting for a mere 14.8% of our full-year estimate despite registering operating  profits  that  were  stronger  by  159.6%  q-o-q  and  31.1%  y-o-y. The  robust  operating  profits  were  mainly  attributed  to  higher  margins during  the  quarter.  That  said,  the  weaker  than  expected  earnings  were mainly  due  to  higher  tax  expenses  arising  from  a  short  term  timing 
difference  in  the  tax  treatment  for  certain  subsidiaries  in  different countries.

- Seasonally  weaker.  Despite  the  poorer  than  expected  earnings,  we make  no  changes  to  our  earnings  estimates  for  now  since  FFB’s earnings  are  typically  weaker  in  the  first  quarter  of  the  year.  We understand  from  Management  that  the  tax  rates  will  normalize  in  the  upcoming quarters and earnings would accordingly perk up again. Thus we maintain our FY13 earnings projection of MYR70.8m.

- Maintain BUY. All in all, we reiterate our BUY recommendation on FFB given that the company is a key beneficiary of the hive of activities in the domestic oil & gas (O&G) and construction sectors. This is supported by its  MYR645m-strong  order  book.  Our  FV  is  unchanged  at  MYR3.35, pegged to 10x FY13 EPS. The stock still offers decent dividend yields of 3.2% for FY13 and 3.6% for FY14, based on a 25% payout ratio.

Source: RHB