FFB’s 1H13 net profit of MYR21.6m was below expectations, accounting for just 30.5% of our full-year estimate, due to higher tax expenses and weaker  revenues.  We  lower  our  FY13-14  earnings  estimates  by  8.5% and 5.8% as we impute higher tax expenses. Maintain BUY as earnings growth  is  still  commendable  at  a  FY12-15  CAGR  of  13%,  backed  by  a MYR832m orderbook. We also trim our FV to MYR3.55 (from MYR3.80).

- Weighed down by tax expenses. Favelle Favco (FFB)’s 1H13 net profit of MYR21.6m was below our estimate, making up a mere 30.5% of our full-year  estimate.  While  operating  margins  were  steady  above  the  9% mark, FFB’s tax expenses rose  significantly  y-o-y  after  the expiration  of its pioneer tax status.

- 2H13  to  look  better.  Backed  by  an  orderbook  of  MYR832m,  of  which majority is for the oil & gas segment, we believe that revenue is likely to improve in 2H13 as these cranes will likely be delivered towards the end of the year. Hence, we retain our revenue forecast for FY13-14. 

- Lowering  our  FY13-14  net  profit  estimates.  Due  to  the  weaker-than-expected  1H13  results,  we  lower  our  FY13-14  earnings  estimate  by 8.5%  and  5.8%  respectively.  We  raise  our  tax  rate  assumption  to  20% from  15%,  which  is  still  below  the  statutory  rate  of  25%  as  we understand that its fabrication yards overseas could still enjoy certain tax rebates.

- Still  cheap,  BUY.  In  line  with  our  earnings  downgrade,  we  reduce  our FV  accordingly  from  MYR3.80  to  MYR3.55,  pegged  to  a  conservative 10x FY14 EPS. Our 10x P/E ratio is at a discount to the oil & gas sector average of 15x FY14 EPS. We think that the discount is justifiable given the company’s  market  capitalisation,  which  is  relatively  smaller  than most of the oil & gas stocks under our coverage.

Source: RHB