Faber Group; Fully Valued; RM1.49
Price Target: RM1.30; FAB MK

We understand that there is little update on the renewal of Faber’s Hospital Support Service (HSS) concession which is expiring in 28 October 2012 after it received a further 6 month extension following the expiry of the initial 6 month extension notice on 27 April 2012.

As highlighted earlier, we understand that there has been another bidder for the HSS concession for Sabah/Sarawak region. Renewing the HSS contract for Sabah/Sarawak is important for Faber, as it accounts for 50% of its total concession PBT contribution, and the entire concession contributes 72-74% to group FY12F-13F PBT.

We reckon that Faber could win part of the Sabah/Sarawak region, if not all, or be a sub-provider of HSS if it fails to secure renewal. But this could pressure margin and/or dilute earnings. Besides that, the Group has registered weak earnings as a result of the non-renewal of its UAE projects, with net profit plunging 24% yo- y in FY2011 to RM60m (vs RM79m in FY2010).

We suspend coverage on the stock given the uncertainty surrounding the renewal of its HSS concession and lack of earnings driver following non-renewal of its UAE projects. Unless Faber secures the renewal of contracts in UAE, or more new contracts, we think there will be no major earnings driver in the near term.

We gathered that Faber is bidding for several military hospital contracts in UAE but little details are available at this point. Our last call is Fully Valued with SOP-derived TP of RM1.30.

Source: HwangDBS Research - 26 June 2012