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Thursday, January 31, 2013

Faber - Finally… The Long Wait Is Over (OSK)

  • Long wait is finally over.  Faber announced that it had received anapproval-in-principle from the Government of Malaysia to continue providing its non-medical healthcare support services in its existing service areas for a period of 10 years from the expiry of its concession on 28 Oct 2011.

  • Faber maintains control in Northen States of Peninsular Malaysia.Under the new concession agreement, Faber’s wholly-owned subsidiary, Faber Medi-Serve (FMS), will continue to provide hospital support services to the Northern States of Peninsular Malaysia (Perak, Penang, Kedah and Perlis). The company will enjoy a 5.8% increase in service fees for this region and an additional RM16.6m p.a. for the Sustainability Programme.

  • Emergence of new concession parties in Sabah and Sarawak. As forSabah and Sarawak, the new concession will be granted to two consortiums where Faber will hold a 40% stake in each. The company will enjoy a 7.8% and 8.1% (includes the Sustainability Programme) increase in service fees for the Sabah and Sarawak service areas respectively. While the renewal of the concession is positive news, the latest developments suggest that Faber would no longer retain its majority stake in its East Malaysia service areas. Nevertheless, we understand that Faber intends to negotiatiate with the new parties to remain as a subcontractor. We believe that Faber Medi-Serve stands a strong chance of becoming a subcontractor to the Sabah and Sarawak service areas given its established network of service infrastructure and good track record. All in, we reduce our FY14 concession-IFM revenue by 29.3% after imputing an increase in service fees and excluding revenue from Sabah and Sarawak from our forecasts. We also raised our FY14 associate  contribution to RM15.4m and reduced our minority interest by 11.4-25.1% p.a. to reverse our earlier expectations of Faber  retaining its majority stake in the Sabah and Sarawak zone.

  • Risks to our view. 1) Failure to secure a subcontractor role for the Sabahand Sarawak service areas; and 2) Delays in property launches and approvals, which could affect revenues from the property segment.

  • Forecasts.  Overall,  our FY12-14 net profit forecasts have been adjustedby 10.2%/-3.3%/-9.3% respectively. Our numbers currently reflect the assumption that Faber would remain as a subcontractor to the Sabah and Sarawak service areas.

  • Investment case. Following our earnings revision and after updating forlatest Faber’s net cash position (post-distribution of special gross interim dividend of 20 sen/share), our SOP fair value has been reduced to RM2.00 (from RM2.07). While the entry of new parties into the Sabah and Sarawak service areas would dilute Faber’s earnings, the renewal of the concession is positive news as it provides  further clarity to Faber’s earnings sustainability. We maintain our Buy call on the stock.

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