FFB’s  FY13  net  profit  only  made  up  96%  of  our  estimates.  Its recommended  FY13  10  sen  dividend  implies  a  32%  dividend  payout. The current orderbook stands at MYR1.1bn, with  98% of it  believed  to be  made  up  of  offshore  O&G  crane  orders.  We  keep  our  FY14/15 forecasts  unchanged.  Downgrade  to  NEUTRAL  with  an  unchanged MYR3.70 FV and target 11x FY14 P/E due to limited share price upside.

• FY13 full-year  slightly lower than expectation.  Favelle Favco  (FFB)’s 12M13  net  profit  of  MYR67.4m  met  96%  of  our  full-year  estimates. Despite the higher taxation  charge in FY13, following the expiry of its tax pioneer status,  FFB  recorded a decent 9% y-o-y growth in  earnings  in tandem with the 10% y-o-y increase in revenue.  
• Strong 4Q13 results. 4Q13 net profit improved 84% y-o-y and 11% q-oq. This is largely in line with our expectations, as highlighted in our 3Q13 result review report.
• MYR1.1bn orderbook. Management said its current orderbook currently stands  at  MYR1.1bn.  Out  of  this,  we  believe  98%  of  the  orderbook  is made up of offshore oil & gas (O&G) cranes. There rest comprises crane orders  for  shipyards,  and  the  construction  and  wind  turbine  industries. We affirm our belief that the demand for offshore drilling rigs will remain strong, fuelling orders for more offshore cranes.
• First  and  final  dividend.  Management  recommended  a  first  and  final tax exempt dividend of  10  sen/share,  implying  a 32% payout  vs  FY12’s 27%.  We are estimating a higher dividend  payout of 40% in both FY14 and FY15.   
• Downgrade  to  NEUTRAL  with  an  unchanged  MYR3.70  FV.  We downgrade the stock to NEUTRAL due to its limited upside in share price as  we  believe  it  has  now  reflected  its  earnings  growth.  We  make  no changes to our FY14/15 earnings estimates.  Therefore,  we  downgrade FFB to NEUTRAL  with  an  unchanged  FV of MYR3.70  and  target FY14 P/E of 11x,  which is  in line with the small-  to mid-cap O&G stocks within our coverage universe.    

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

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Source: RHB