Favelle Favco (FFB)’s 9MFY13 core net profit of MYR42m was within our expectation as we expect a stronger 4QFY13. Core earnings declined by 24.8%  y-o-y  due  to  higher  expenses  in  anticipation  of  increased orderbook going forward.  Its current orderbook of MYR1.04bn is  at an all-time  high  and we  expect  it  to  grow  in  tandem  with  the  increase  in offshore oil & gas (O&G) activities. Maintain BUY, with a MYR3.55 FV.

• 9MFY13  core  net  profit  in  line.  FFB’s  9MFY13  core  net  profit  of MYR42m was in  line  with our expectations,  despite making up only 65% of  our  full-year  estimate,  as  we  expect  a  stronger  4QFY13.  9MFY13 pretax  profit  declined  7.5%  y-o-y  due  to:  i)  higher  administrative expenses related to  an  increase in manpower, and ii) higher insurance coverage  in  anticipation  of  increased  orderbook.  9MFY13  overall effective tax rate of 18.1% was visibly higher than 14.2% in 9MFY12 due to  the  expiration  of  its  pioneer  status.  However,  it  was  lower  than  the statutory  tax  rate  of  25%  due  to  tax  benefits  arising  from  deferred  tax assets.
• Orderbook hits all-time high.  Its orderbook of  around  MYR1.04bn is at an  all-time high. We estimate that 95% of its orderbook is made up of contracts to supply  offshore  oil & gas (O&G)  cranes  with visibility up to FY15.  The  remaining  5%  is  from  the  shipyard,  construction  and  wind turbine industry.  FFB may end the year with  some  MYR140m worth of orders to be delivered in 4QFY13.  We  also  estimate  that  the group  will be  delivering  MYR406m  worth  of  contracts  in  FY14  from  its  current orderbook.
• Maintain  BUY,  MYR3.55  FV.  We  keep  our  FY13  and  FY14  earnings estimates unchanged as we believe that FFB will stand to benefit from the  increase  in  offshore  O&G  exploration  and  production  activities regionally.  Our MYR3.55  FV  is based on a target FY14 P/E of 9.9x, in line with other small-cap companies.

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SWOT Analysis

Company Profile
Favelle Favco is primarily involved in the manufacturing of customised cranes for three major industries, namely offshore oil & gas, construction and ports/wharf.

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Source: RHB