Faber’s  1HFY14  earnings  came  in  line  with  our  and  consensus estimates.  Although  core  profit  declined  by  13.4%  y-o-y  due  to  lower contribution  from  non-concession  and  property  segments,  we  expect earnings  coming  from  PROPEL  and  Opus  to  make  up  for  it  in  the 2HFY14.  We maintain our NEUTRAL call and SOP-based FV of MYR3.20 as we await further development on the proposed acquisition. 

Broadly  in  line.  Faber’s  1HFY14  earnings  came  in  line  with  our  and consensus  estimates  at  MYR24.4m,  making up  only  27.1%  of  our  fullyear forecast.  The group’s core earnings fell 13.4% y-o-y on the back of the 5.1% decline in revenue in 1HFY14 due to  a  sharp fall in the nonconcession  and  property  revenues  respectively.  On  a  q-o-q  basis, 2QFY14  revenue  rose  3.2%  q-o-q,  driven  mainly  by  higher  integratedfacilities management (IFM)  concession (+4.1%) and properties revenue (+14.0%), which more than offset the decline in non-concession revenue (-18.5%) arising from lower contribution from its UAE project. A one-off tax refund booked during the quarter contributed to the 29 .2% increase in core profit q-o-q.

Latest development.  Faber is  in  the midst of  completing  its  acquisition of  Projek Penyelenggaraan Lebuhraya  (PROPEL)  and Opus,  which, per management,  is expected to be completed  in  October. Faber is  getting approvals  from  shareholders  of  the  three  companies  in  order  for  it  to proceed  with  the acquisition. Faber has  recently  received  the  approval from the New Zealand Takeover Panel,  which allows Faber the right to acquire Opus. 

Risks.  i)  capacity  constraint  at  the  hospital  support  services  (HSS)division,  which  includes  insufficient  capacity  to  cope  with  projected growth  in  clinical  waste  load,  ii)  limited  number  of  commercial  HSSbusiness  opportunities,  iii)  low  adoption  rate  of  facility  management services  in  the  private  sector,  iv)  the  nature  of  overseas  maintenance contracts, and v) increasing cost pressures internally. 

Maintain NEUTRAL and FV of MYR3.20.  We  maintain NEUTRAL and our  SOP-based  FV of MYR3.20 for now pending the completion of the acquisition  of PROPEL and Opus. We believe that the current valuation is  fair,  considering  that  Faber  is  currently  trading  at  21.0x  P/E  vs  its peers like Daibiru Corp (DAI JP, NR), which currently trades at 25.4x P/E despite  its  smaller size. We also believe  that the current share price has factored in all the positives given that  it has surged 96% YTD since the announcement of the acquisition.

Source: RHB