* Growth will come from overseas Integrated Facilities Management (IFM) segment: Revenue contribution from overseas IFM surged by 459% in FY09 due to two contracts awarded by the Department of Municipal Affairs, Western Region Municipality (WRM), Emirate of Abu Dhabi in the month of March and November 2009. The combined value of the two contracts’ is RM207.6 million annually, with the option to renew on a 1+1+1+1 at the discretion of WRM. We expect the contracts to be renewed without any major hi -cups. Also, Faber is bidding for similar projects in Abu Dhabi. In India, Faber entered a JV to provide healthcare support service for hospitals owned by Apollo hospital group, facility management for Hyderabad International Airport and other non-healthcare IFM projects. Faber is currently bidding for a RM10million-a-year contract to service seven Fortis Hospitals in India. Moving forward, we reckon overseas IFM segment will be the main growth driver for Faber.
* Government concession renewal is likely to be made known by October 2010: Faber group’s government concession which serves 79 hospitals in Perlis, Kedah, Penang, Perak, Sabah and Sarawak will expire in 2011. Contribution from this segment is about 64.4% of FY09 revenue. Although the concession ensured resilient earnings over the year, it somewhat exhibits limited growth . In view of their good track record, we expect the government concession to be renewed. Further catalyst to growth from this segment could come should Faber acquire Pantai Medivest and Pantai Fomema. Pantai group announced in March 2010 of their intention to divest the two subsidiaries which registered revenue of approx RM430 million in FY08. However, the Faber management did not unveil on the issue of possible acquisition.
* Property segment: Their property division was adversely affected from the recent financial crisis. Revenue from this segment fell from 28.3% in FY07 to 22.9% in FY08 and 15.3% in FY09. With an improving economic environment, Faber is lining up three property launches in FY10 with total GDV of RM459 million to replenish its depleting unbilled sales of RM30 million. The projects include Phase 1A (Fleet) and Phase 1A (DBKL) which is located in Taman Desa KL as well as Laman Rimbunan Phase 4 which is located at Kepong. All the three projects offers Semi-Detached units as well as a few number of bungalow units. Located in prime vicinity, we believe their obvious target buyers will be those who plan to ‘up-grade’ and/or new buyers from mid-higher income group. We are projecting a moderate growth from the property division in FY10, with Phase 1A (DBKL) to be launched in 1QFY10; Phase 1A (Fleet) in 3QFY10; and Laman Rimbunan Phase 4 in Q2FY10. With the staggered launches, we expect revenue to kick in swiftly in FY11 and FY12 as the construction of the projects move into a more advance stage. Sitting on a net cash position of RM125.1mn, Faber group is currently in talks to acquire more landbank to replenish its 43 acres landbank in Klang Valley to sustain growth in mid to long term.
* Valuation: Their overseas IFM business had paid off well, compensating for the poor performance from property segment in FY09 that was adversely affected from the recent economic crisis with depleted unbilled sales worth RM30 million only. Going forward, we are optimistic on the property sector, expecting a gradual recovery in FY10. This together with a brighter outlook from their overseas Healthcare and Non-healthcare IFM in FY10 should see earnings improve. Thus, we recommend Outperform with a target price of RM2.66 which is at a 10% discount based on our SOP valuation. We had ascribed 12x and 6x PER to its IFM and property segment respectively.
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