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“Faber”ably Positioned
The market has reacted rather negatively – and unjustifiably - to news of Faber’s largest shareholder UEM Group potentially disposing of a stake in the company. We firmly believe that if the disposal does happen, it would only involve changes in Faber’s shareholding structure without impacting its existing business direction. Our view on upcoming M&As within the healthcare sector which could potentially involve Faber remains. As such, we maintain our BUY recommendation at an unchanged TP of RM3.58 based on SOP valuation.
Not a concern. Although we are slightly surprised with the unconfirmed news that the UEM Group might dispose of its stake in Faber, it is nevertheless within UEM’s restructuring plan to focus on its core business. With neither Faber nor UEM having commented on the matter, the potential disposal largely remains a rumor at this juncture. As we believe a potential disposal would largely involve a change in shareholding without affecting Faber’s business direction, the market seems to have unjustifiably over-reacted to the rumour, especially since the company’s fundamentals and future prospects remain intact
May not happen so soon. Although our sources were unable to confirm the rumor, we believe the potential disposal might be in the pipeline. However, we think that it may not happen so soon as the decision whether or not Faber’s concession is renewed by the Government will only be known in October. The concession renewal would probably be a requirement before a buyer agrees to the pricing.
Tough finding a buyer. With Faber’s diversified business consisting of Integrated Facilities Management (IFM) for healthcare concessions and non healthcare, as well as property development, we believe it would be rather difficult to find a strategic buyer for the group. As such, we believe the disposal would most likely attract passive investors/buyers rather than strategic buyers.
Maintain Buy. Time to accumulate. With the potential disposal by UEM still remaining a rumor and even if it does materialise, we believe that Faber’s business fundamentals will remain intact. As such, we maintain our forecast and BUY recommendation at an unchanged TP of RM3.58 based on SOP valuation. Following the sharp price correction over the last two days, we believe that the current price level is attractive. Faber’s current valuation is an attractive 9.7x and 8.9x PER on FY10 and FY11 EPS respectively.
KEY HIGHLIGHTS
Most likely a straight equity sale. There are some concerns that UEM may only sell the concession business and keep Faber’s property business since it fits into UEM’s portfolio, but we think this would be rather extreme based on the following reasons: i) Faber’s property division is really quite small compared to UEM’s other property businesses, and ii) UEM only owns 34.3% of Faber and a disposal of a part of Faber’s business will therefore involve a EGM, which may or may not go through. As such, we believe that in the event UEM decides to dispose of its interest in Faber, it would be in “as is” form, and not a partial sale of certain divisions of Faber’s business. As such, we believe that concerns that UEM may only sell the concession business and keep Faber’s property business are overblown.
A challenge in finding a buyer. With Faber’s diversified business comprising Integrated Facilities Management (IFM) for healthcare concessions and non healthcare as well as property development, we believe it would be rather difficult to find a strategic buyer. As such we believe the disposal would most likely attract passive investors/buyers rather than strategic buyers, and as such, there would not be any changes in Faber’s business. With Faber’s management largely unaware of the potential disposal by UEM, this strengthens our view that the potential disposal would most likely involve a straight equity sale without changing Faber’s current business model.
On the brighter side. The market has reacted rather negatively to the speculation and we believe has not taken into account the possible positive outcome from the potential disposal. If UEM decides to dispose of its stake, it would definitely have to get the best price. In order to so, UEM would have to make sure that Faber secures the renewal of its concession; otherwise it would not be able to include the concession into its selling price, just as what UEM had done prior to the disposal of its interest in Pharmaniaga. This would indirectly eliminate the risk of the concession not being renewed as well as increase Faber’s earnings visibility. We believe that if the stake sale goes through, it may not materialize so soon as Faber’s concession renewal is only scheduled to be announced in October. .
Could it be a related party transaction? With Khazanah as the indirect major shareholder of Faber, we do not rule out the possibility that the transaction might be a related party transaction whereby it could involve the transfer of equity interest from UEM to its parent company, Khazanah Nasional. We believe this would enable Khazanah to consolidate its healthcare related businesses, which could potentially involve M&As between Faber and Pantai Medivest as well as Pantai Fomema. Please refer to our report entitled, Remaining “Faber”able dated 17 March 2010 for our take on the financial impact from the potential M&As between those three companies, which would ultimately enable UEM to streamline its core business.
Maintain Buy, time to accumulate. With the potential disposal still a rumor at this point, and even in the event that if it does go through, we believe Faber’s strong business fundamentals remain intact. As such, we maintain our forecast and BUY recommendation at an unchanged TP of RM3.58 based on SOP valuation. Following the sharp price correction over the last two days, the current price level provides a good opportunity to accumulate the stock. Faber is currently trading at an attractive 9.7x and 8.9x PER on FY10 and FY11 EPS respectively.
The market has reacted rather negatively – and unjustifiably - to news of Faber’s largest shareholder UEM Group potentially disposing of a stake in the company. We firmly believe that if the disposal does happen, it would only involve changes in Faber’s shareholding structure without impacting its existing business direction. Our view on upcoming M&As within the healthcare sector which could potentially involve Faber remains. As such, we maintain our BUY recommendation at an unchanged TP of RM3.58 based on SOP valuation.
Not a concern. Although we are slightly surprised with the unconfirmed news that the UEM Group might dispose of its stake in Faber, it is nevertheless within UEM’s restructuring plan to focus on its core business. With neither Faber nor UEM having commented on the matter, the potential disposal largely remains a rumor at this juncture. As we believe a potential disposal would largely involve a change in shareholding without affecting Faber’s business direction, the market seems to have unjustifiably over-reacted to the rumour, especially since the company’s fundamentals and future prospects remain intact
May not happen so soon. Although our sources were unable to confirm the rumor, we believe the potential disposal might be in the pipeline. However, we think that it may not happen so soon as the decision whether or not Faber’s concession is renewed by the Government will only be known in October. The concession renewal would probably be a requirement before a buyer agrees to the pricing.
Tough finding a buyer. With Faber’s diversified business consisting of Integrated Facilities Management (IFM) for healthcare concessions and non healthcare, as well as property development, we believe it would be rather difficult to find a strategic buyer for the group. As such, we believe the disposal would most likely attract passive investors/buyers rather than strategic buyers.
Maintain Buy. Time to accumulate. With the potential disposal by UEM still remaining a rumor and even if it does materialise, we believe that Faber’s business fundamentals will remain intact. As such, we maintain our forecast and BUY recommendation at an unchanged TP of RM3.58 based on SOP valuation. Following the sharp price correction over the last two days, we believe that the current price level is attractive. Faber’s current valuation is an attractive 9.7x and 8.9x PER on FY10 and FY11 EPS respectively.
KEY HIGHLIGHTS
Most likely a straight equity sale. There are some concerns that UEM may only sell the concession business and keep Faber’s property business since it fits into UEM’s portfolio, but we think this would be rather extreme based on the following reasons: i) Faber’s property division is really quite small compared to UEM’s other property businesses, and ii) UEM only owns 34.3% of Faber and a disposal of a part of Faber’s business will therefore involve a EGM, which may or may not go through. As such, we believe that in the event UEM decides to dispose of its interest in Faber, it would be in “as is” form, and not a partial sale of certain divisions of Faber’s business. As such, we believe that concerns that UEM may only sell the concession business and keep Faber’s property business are overblown.
A challenge in finding a buyer. With Faber’s diversified business comprising Integrated Facilities Management (IFM) for healthcare concessions and non healthcare as well as property development, we believe it would be rather difficult to find a strategic buyer. As such we believe the disposal would most likely attract passive investors/buyers rather than strategic buyers, and as such, there would not be any changes in Faber’s business. With Faber’s management largely unaware of the potential disposal by UEM, this strengthens our view that the potential disposal would most likely involve a straight equity sale without changing Faber’s current business model.
On the brighter side. The market has reacted rather negatively to the speculation and we believe has not taken into account the possible positive outcome from the potential disposal. If UEM decides to dispose of its stake, it would definitely have to get the best price. In order to so, UEM would have to make sure that Faber secures the renewal of its concession; otherwise it would not be able to include the concession into its selling price, just as what UEM had done prior to the disposal of its interest in Pharmaniaga. This would indirectly eliminate the risk of the concession not being renewed as well as increase Faber’s earnings visibility. We believe that if the stake sale goes through, it may not materialize so soon as Faber’s concession renewal is only scheduled to be announced in October. .
Could it be a related party transaction? With Khazanah as the indirect major shareholder of Faber, we do not rule out the possibility that the transaction might be a related party transaction whereby it could involve the transfer of equity interest from UEM to its parent company, Khazanah Nasional. We believe this would enable Khazanah to consolidate its healthcare related businesses, which could potentially involve M&As between Faber and Pantai Medivest as well as Pantai Fomema. Please refer to our report entitled, Remaining “Faber”able dated 17 March 2010 for our take on the financial impact from the potential M&As between those three companies, which would ultimately enable UEM to streamline its core business.
Maintain Buy, time to accumulate. With the potential disposal still a rumor at this point, and even in the event that if it does go through, we believe Faber’s strong business fundamentals remain intact. As such, we maintain our forecast and BUY recommendation at an unchanged TP of RM3.58 based on SOP valuation. Following the sharp price correction over the last two days, the current price level provides a good opportunity to accumulate the stock. Faber is currently trading at an attractive 9.7x and 8.9x PER on FY10 and FY11 EPS respectively.
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