9M14 earnings  came  in  below  our  and  consensus  estimates.  Maintain NEUTRAL,  with  a  SOP-based  MYR2.97  TP  (from MYR3.20, 1% upside).Core profit fell  8.4% YoY  on lower IFM concession and non-concessioncontributions.  We slash our FY14-15 earnings forecasts by 25.3-40.5% to  incorporate  the  challenging  operating  environment  and  lower revenue from its IFM concession and non-concession businesses.

Below  estimates.  Faber’s  9M14  earnings  came  in  below  our  and consensus estimates at MYR36.7m, making up only 41% of our previous MYR89.7m  full-year  forecast.  Its  core  earnings  fell  8.4%  YoY  on  the back  of  a  5.5%  decline  in  revenue  on  a  fall  in  its  integrated  facilitiesmanagement  (IFM)  concession  and  non-concession  revenues.  On  a QoQ  basis,  3Q14  revenue  rose  1.2%,  mainly  on  higher  properties revenue  (+231%).  Its  IFM  concession  and  non-concession  wings  sawdeclies  of 1.9%  and 15.9% respectively, mainly on  higher linen  delivery and clinical waste  collection in the preceding quarter  and the expiry of a United Arab Emirates hospital contract. No dividend was declared.

Projek  Penyelenggaraan  Lebuhraya  (PROPEL)  and  Opus acquisition updates. Faber  announced on 30 Oct that it had  completed the  PROPEL and Opus  acquisitions  –  in line with  its  initial timeline.  We expect earnings contributions from both to start coming in from 4Q14. 

Risks.  These include  capacity constraint at its  hospital support services (HSS) wing (including  insufficient capacity to cope with projected growth in  clinical  waste  load),  limited  commercial  HSS  business  opportunities and the mostly short-term nature of overseas maintenance contracts. 

Forecasts.  We  slash  our  FY14/FY15  earnings  forecasts  by 25.3%/40.5%  respectively  as we incorporate an increasingly challenging operating environment and lower contributions  from  its  IFM concession and non-concession businesses.

Stay  NEUTRAL.  We  revise  our  SOP-based  TP  to  MYR2.97  (from MYR3.20)  following  the  FY14-15  earnings  revision  and  maintain  our NEUTRAL  call. We  believe  that  the  current  valuation is fair,  given  that Faber is currently trading at 18.6x P/E vis-à-vis  peers like Daibiru Corp (8806  JP,  NR),  which  currently  trades  at  31.4x  P/E.  This  is  given  the group’s relatively smaller size compared to Daibiru.

Source: RHB