Faber's property division to contribute more

Faber Group Bhd (May 9, RM2.05)
Maintain buy at RM2.08 with revised target price of RM3 (from RM3.30): Faber's 1QFY11 net profit (-1.7% year-on-year [y-o-y] to RM14.2 million) accounted for about 16.6% of our and consensus full-year forecast. Below expectation performance was mainly due to lower earnings contribution from integrated facilities management (IFM) non-concession business in the UAE and slow new job replenishment rate. Taking this into account, but to be mitigated by higher contribution from property business in the next few quarters this year and some housekeeping activities (after the release of its FY10 annual report end-April 2011), we revise downwards our FY11 net earnings by 11% to RM75.9 million (3.7% lower than FY10's figure). We also introduce our FY12 numbers with an earnings per share growth of 9.5% y-o-y, expecting better performance for all divisions.

Given the fact that the UAE Western Region Municipality's total RM184 million contracts (expiring in 2QFY11) will not be renewed, we anticipate a slowdown of work orders from the UAE. Pre-tax profit contribution from IFM non-concession business declined 45% y-o-y in 1QFY11 but improved quarter-on-quarter as the division registered a loss in 4QFY10 on additional costs.

This was offset by higher contribution from the IFM concession and property segments. All in, Faber's pre-tax profit increased 7.4% y-o-y to RM25.6 million. We reiterate our belief that the government hospital support services (HSS) concession, which will expire in October 2011, will be extended.

New launches of Villa Prima Phase 1A (gross development value of RM148 million) in February 2011 and Laman Rimbunan Phases 4 and 5 package 3 (estimated RM100 million) which is to be expected in 3Q11, will help to make up the loss of UAE contracts in FY11.

We have an unchanged "buy" recommendation for Faber with revised target price of RM3 (previously RM3.30) based on sum-of-parts valuation with an implied price-earnings ratio (PER) of 14.3 times. — MIDF Research, May 9