Since our last update on Favelle Favco (FFB) early this year with a recommended TP
of RM0.61 (NEUTRAL), news flow on the company has been rather thin. However, we
are optimistic that FFB will see increasing orders next year, especially from the
offshore crane segment, given the more promising outlook for the oil & gas and
construction sectors in FY10. However, in view of the lag impact due to the nature of
its business and concerns over cost management, plus the risks associated with bank borrowings, we are prompted to call a SELL on FFB with a TP of RM0.75, based on a PE of 7.5X on its expected EPS for FY10.
Valuation. We are recommending a SELL on Favelle Favco at a target price of RM0.75 based on a discounted PE for the average oil & gas sector at11x and smaller construction companies’ 10x. We have applied a further discount on its PE as we are pessimist over the company’s long-term cost management and the lag impact from the oil & gas industry. Thus we have assigned a PE of 7.5X to its expected EPS for FY10.
of RM0.61 (NEUTRAL), news flow on the company has been rather thin. However, we
are optimistic that FFB will see increasing orders next year, especially from the
offshore crane segment, given the more promising outlook for the oil & gas and
construction sectors in FY10. However, in view of the lag impact due to the nature of
its business and concerns over cost management, plus the risks associated with bank borrowings, we are prompted to call a SELL on FFB with a TP of RM0.75, based on a PE of 7.5X on its expected EPS for FY10.
Valuation. We are recommending a SELL on Favelle Favco at a target price of RM0.75 based on a discounted PE for the average oil & gas sector at11x and smaller construction companies’ 10x. We have applied a further discount on its PE as we are pessimist over the company’s long-term cost management and the lag impact from the oil & gas industry. Thus we have assigned a PE of 7.5X to its expected EPS for FY10.
