The contribution from its overseas operation may be relatively small but Faber has over the years progressively strengthened its foothold abroad, particularly in India and UAE, via its integrated facilities management (IFM) division. With its overseas operations gaining momentum, we anticipating its contribution to the group’s topline and earnings to grow significantly, particularly from 4QFY09 onwards as the group recently secured some contracts in UAE. We maintain our forecasts and our BUY recommendation with an unchanged TP of RM2.15, based on a SOP valuation
Strong rebound in property division. After a very slow start at the beginning of the year amid a sluggish property market and global economy, Faber’s property development division saw a strong rebound in demand for its properties, particularly in 2H09, during which the division managed to return to the black. We gather that the take up rate for its ongoing projects in Laman Rimbunan and Taman Hilltop Perdana was encouraging as the economy showed some signs of recovery. Banking on the recovering sentiment, Faber is set to launch its exclusive property development in Taman Desa known as Phase 1A (DBKL) with a GDV of RM136m, soon. This project is being undertaken via a JV with DBKL. We believe there could be more property development projects undertaken via a similar mechanism between both parties given DBKL’s sizeable landbank around KL.
Concession should be renewed. Faber’s 15-year concession to provide health support services in government hospitals will expire in 2011. We believe it is very unlikely for the concession not to be renewed given that substantial investments have been poured in since the concession started, and the fact that Faber has the expertise and track record in the provision of health support services. We gather that Faber submitted the proposal for renewal in October 2009 and Government is expected to respond after one year, which would sometime at end-2010. On the bright side, the renewal will allow Faber to propose a new rate given that the rates for the existing concession agreement have not been reviewed although costs have gone up over the last 12 years, which we believe will improve its margins and profitability.
Maintain BUY with an attractive valuation. We maintain our forecasts and our BUY recommendation with an unchanged TP of RM2.15 based on a SOP valuation. The stock is currently trading at only 6.3x PER on FY10 EPS, which we deem attractive and somewhat cheap compared to the market, on top of the potential upside in dividend payout given that current the payout is less than 30% of PATAMI. We also believe Faber is a strong candidate for the potential consolidation of the healthcare sector, could provide a rerating catalyst for the stock.