Faber group’s HSS concession finally decided
Business & Markets 2013
Written by theedgemalaysia.com
Wednesday, 30 January 2013 09:48
FABER GROUP BHD []
(Jan 29, RM1.51)
Maintain at RM1.31 with a revised target price of RM1.61 from RM1.71 previously: Faber’s wholly owned subsidiary Faber Medi-Serve Sdn Bhd (FMS) has received three letters from the Public Private Partnership Unit of the Prime Minister’s Department dated Jan 23, 2013, in which the government has agreed in principle for FMS to implement the new concession for the privatisation of the hospital support services (HSS) for the northern region of Peninsular Malaysia, Sabah and Sarawak.
For the northern region (Perak, Penang, Kedah and Perlis), the tenure of the new concession is 10 years, with the new service fee set at an increase of 5.8% from the 2011 Peninsular Malaysia service fee and a further RM16.572 million per year for the sustainability programme, subject to the terms and conditions of the HSS to be negotiated between the government and FMS.
For Sabah, the HSS will be implemented by a new consortium company, in which FMS will hold 40% equity interest while another 60% will be held by ICare Consortium Sdn Bhd. The new concession will be for 10 years with the new service fee (including the sustainability programme) at an increase of 7.8% from the 2011 Sabah service fee.
The privatisation of the HSS for Sarawak is to be implemented by a new consortium company, of which FMS will hold 40% equity interest with the remainder held by another consortium company through Metrocare Services Sdn Bhd and the joint venture between Simfoni Dua Sdn Bhd and the Sarawak Economic Development Corp. The new concession will be for 10 years and the new service fee (including the sustainability programme) at an increase of 8.1% from the Sarawak service fee.
On a positive note, the deal has ended the uncertainty regarding the award of the concession renewal to the group, which in our opinion was the main cause for the stock’s decline over the past year. However, as the group will now only have a 40% stake in the concessionaire for Sabah and Sarawak, the revenue and earnings of the integrated facility management (IFM) concession business will be impacted by the new deal.
Based on the assumption that the revenue and profitability of each hospital under the group’s management is more or less equal, the northern Peninsular Malaysia region contributes approximately 40% of the revenue and earnings to the group’s IFM concession business, with Sabah contributing 31%, and Sarawak, 29%. Based on this, we expect the revenue and earnings of the IFM concession business to be 30% lower in 2013 than last year. Currently the IFM concession business contributes approximately 68% of total revenue.
However, we expect loss of earnings from the concession business to be covered by the revenue and earnings growth of the property division. Currently, this division makes up 24% of the group’s total revenue, and is growing at 39.9% year-on-year as at the first nine months of financial year 2012 (9MFY12). We expect this division to be the main growth contributor for Faber’s revenue and earnings in the future.
We maintain our “buy” recommendation on Faber with a revised target price of RM1.61. — MIDF Research, Jan 29
This article first appeared in The Edge Financial Daily, on Jan 30, 2013.