- Despite
- Given its already low leverage, Favco's management decided to reduce its leverage further. Debt decreased from RM64m to RM28 (56% decreased). The justification could be its high cash holding which management attempts to cut its unncessary bank borrowing.
- Despite the debt repayment, cash went up by 9% in its recent quarter, from RM334m to RM365m.



To summarise, the outlook for Favco is neutral (short term) but positive in the medium term as as we believe negative factors might dominate the positives for a while. However, we are of the opinion that its low relative valuation provides a good investment opportunity with good upside potential (to recap, our relative valuation only focus on multiple discount while igoring the potential multiple expansion. Hence the upside potential could be higher but we are being conservative in our estimation). It is currently trading at close to its support, low PE ratio of around 6x, high cash holdings and good dividend yield (which currently the firm has good dividend coverage, we would assess the sustainability in its upcoming financials and report whether there is material change).




Feel free to comment and contact me with any contradictory views.


Thanks and Happy Trading,





KapitalWise

 

http://kapitalwise.blogspot.my/2016/09/quarterly-result-commentary-favelle.html