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Tuesday, July 1, 2014

Faber negotiating HSS contract extension with govt (Edge)

Maintain neutral with a target price of RM3.20: Faber organised a briefing recently which was attended by about 30 analysts and fund managers. The main focus was its acquisition of Projek Penyelenggaraan Lebuhraya Bhd (Propel) and Opus Group Bhd from UEM Group Bhd, which will enable Faber to provide end-to-end support services, ranging from consultation on asset development or procurement to active asset management for various sectors aside from healthcare.

Faber is also poised to benefit from the extensive network of clients serviced by Opus globally. It will also allow the group to transform into an all-round asset facility management (AFM) company versus its current integrated facility management (IFM) core business. The merger is expected to be finalised by mid-October.

Management guided that it is currently in the midst of negotiating the extension of its current hospital support service (HSS) contract with the government. The contract is due to expire at the end of the year. While no timeline was mentioned, Faber will continue to provide HSS to government hospitals for the next six to nine months until the new contract is awarded

Though we agree with management’s view that the acquisition (of Propel and Opus) will provide positive synergy for Faber in the longer term, we are wary of the non-concession and property business segments that could be a drag on earnings.

We maintain our current forecasts for financial year 2014 ending Dec 31 (FY14) and FY15, which imply earnings growth of 100% and 81.6% respectively after the merger, recognising maiden contributions from Propel and Opus for three months in FY14.

We maintain our “neutral” call on the stock with a slightly lowered sum-of-parts-based fair value of RM3.20 (from RM3.36) after updating our valuation parameters. Faber’s share price has advanced 89% year-to-date and we believe the benefits of the acquisition have been priced in. Hence, we think the stock is fairly valued. — RHB Research, June 30

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