Crane maker Favelle Favco’s fundamentals still intact

by **Cals** Wed 23 Jul 2014, 13:09

Business & Markets 2014

Written by MIDF Research

Wednesday, 23 July 2014 09:59

Favelle Favco Bhd
(July 22, RM3.62)
Initiating coverage with neutral call and target price of RM3.81: Favelle Favco is a leading bespoke offshore and tower crane manufacturer and it trades at a comparatively low price earnings ratio (PER) with decent dividend payout and yield.

While we are initiating Favelle Favco with a neutral call, we recommend investors currently invest to retain exposure as the company’s fundamentals remain intact.

Favelle Favco is at the forefront in the manufacture of high-speed and high capacity niche customised cranes under two world renowned brands — Favelle Favco (offshore cranes) and Krøll (tower cranes). About 89% of its sales are generated from markets outside of Malaysia.

Year-to-date, the company has secured new orders worth over RM255 million, bringing its outstanding order book to RM1.182 billion. Approximately 91% of the order book consists of orders from the oil and gas sector. Typically, the duration from the time of sale to the time of delivery takes about nine to 18 months.

Since its listing in August 2006, Favelle Favco’s average PER has been 8.8 times. The company is trading at PER of 11.2 times which is at a discount in comparison to the KLCI small cap index’s current PER of 14.3 times. The company is also a cheaper proxy to small-to mid -cap oil and gas services companies which typically trade at PERs of between 14 and 16 times.

Rig utilisation rates and contracted rigs are often used as a barometer for offshore support vessels and associated support services such as crane manufacturing. With sustainably high oil prices and robust offshore activities, the bespoke crane manufacturing industry is expected to be vibrant.

We are valuing Favelle Favco at a target price of RM3.81 premised on 2015 earnings per share of 34.6 sen and PER multiple of 11 times.

Although the expected 12-month total return does not warrant a “buy” recommendation, we nonetheless advocate investors who have invested to retain or even increase their exposure as the company is fundamentally sound, has bright prospects and offers a decent dividend yield. — MIDF Research, July 22

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This article first appeared in The Edge Financial Daily, on July 23, 2014.[/size]