We  met  up  with  Faber’s Management  for  an  update  on  its  operations following  the  release  of  its  1QFY13  results.  While  the  loss  of  income from its Sabah and Sarawak concession business seems inevitable, we continue  to  like  the  company  for  its  solid  earnings  base,  which  is backed by its sturdy net cash per share of MYR0.85. Maintain BUY, with our SOP-based FV upgraded to MYR2.34. 
 
- New concession agreement to be inked. Management highlighted that a new concession agreement for Hospital Support Services (HSS) will be inked  soon  upon  the  blessing  of  the  Minister  of  Health  Datuk  Seri  Dr Subramaniam  Sathasivam.  Upon  finalization  of  that,  Faber  will  hold  a 40%  stake  in  both  the  Sabah  and  Sarawak  service  areas  vs  its  100% 
currently.  While  this  would  likely  translate  into  a  loss  of  income  in  the long run, Faber is looking to take up the subcontractor role for an interim period of six to 12 months to ensure operational efficiencies are adhered to amidst the transition phase.    

- To  focus  on  its  non-concession  segment.  Management  is  looking  to expand  its  non-concession  facilities  management  services,  possibly  by 20%-30%  pa,  with  an  eye  on  the  oil  &  gas  sector  in  particular.  For instance,  it  recently  won  a  MYR18m  building  management  contract  for Johor’s new  state  administrative  center  Kota  Iskandar  for  three  years. Faber  is  also  actively  in  talks  with  oil  &  gas  players  to  potentially  carry out  management  services  within  the  fast-booming  industry.  We  are forecasting  its  non-concession  segment  to  chalk  in  revenues  of MYR65m-MYR70m  pa.  Upgrades  to  our  estimates  are  likely  should there be any major contract wins in the near term.    

- Scouting  for  landbank.  On  a  side  note,  the  outstanding  gross development  value  of  its property  arm  stood  at  MYR570m  with  unbilled sales of MYR40m as of 1Q13. Management is hunting for landbank, but we understand that nothing concrete has developed thus far.    

- Maintain  BUY.  While  the  loss  of  income  from  its  Sabah  and  Sarawak concession  business  seems  inevitable,  we  like  Faber  for  its  otherwise solid  earnings  base  backed  by  its  sturdy  cash  pile  of  MYR312.5m  with minimal  borrowings,  which  translates  into  net  cash  per  share  of MYR0.85. Maintain BUY with our SOP-based FV upgraded to MYR2.34 (from MYR1.94 previously) as we roll forward our valuation to FY14.

Source: RHB