5 Key Insights About Favelle Favco Berhad

Since year 2014, Favelle Favco Berhad (“FFB” or “the Company”) share price have dropped from its peak of RM4.00 per share in year 2014 to RM2.27 per share in year 2016. That is about 43% over the past 2 years. The sharp decline in its share price was due to the slowdown in the overall oil & gas industry. This has led to the slowdown in FFB’s offshore cranes demand. To make matters worse, a significant portion of FFB’s order book comes from offshore oil & gas customers. Many of FFB’s offshore oil & gas customers suffered huge losses and have requested for a delay in rolling out the cranes that have been ordered. However, investors have since been optimistic about FFB as the share price have recovered back to RM2.83 per share at the time of writing this blog post.

FFB is incorporated in the year of 1992 and got listed in the Main Market of Bursa Stock Exchange in the year 2006. The Company is involved in the design, manufacture & trading of cranes to industries such as offshore oil & gas, construction and Ports/ Wharf. It also provide maintenance services and rental of cranes. Its product range includes offshore cranes, tower cranes, crawler cranes and multipurpose wharf cranes.

I have analysed the Company and here are the 5 key things you need to know about FFB before you invest in it:

#1: STRONG TRACK RECORD

FFB’s tower cranes is well recognized globally for its track record of usage in 9 of the world’s tallest buildings such as follows:

  1. Burj Khalifa, United Arab Emirates;
  2. One World Trade Centre, New York;
  3. Taipei 101, Taiwan;
  4. Shanghai World Financial Centre, China;
  5. International Commerce Centre/ Mega Tower, Hong Kong;
  6. Petronas Twin Tower 1 & 2, Malaysia;
  7. Jin Mao Tower, China;
  8. World Trade Centre Tower 1 & 2, USA; and
  9. Two International Finance Centre, Hong Kong.

Such track record is due to FFB having a reputation for speed and strength. Moving forward, FFB is expecting more contracts for its tower cranes to install wind turbines within Asean Region especially in Thailand.

#2: SLOWDOWN IN OFFSHORE CRANE DEMAND

Favelle Favco Berhad

The slowdown in offshore crane demand due to weak Oil & Gas sector has led to FFB’s revenue fell sharply by 32.9% in year 2016. However, its net profit only dropped by 21.2% which indicates that the Management has been taking action in controlling its expenses. As at May 2017, FFB has an order book of RM612.1 million. According to the Management, this will only last for 9 months. A quick glimpsed at the Company’s 10 year revenue would indicate that FFB is in a cyclical industry. The sharp fall of revenue from year 2008 to year 2010 was due to the slowdown in both oil & gas industry and construction industry. Oil prices dipped to a low of $41.58 per barrel in Dec 2008.

#3: GROWTH COMES FROM MAINTENANCE SERVICES

The revenue from Services Rendered (i.e. crane maintenance service) in year 2016 have increased by 44.6% against previous year. The Management have been focusing on its maintenance service business segment with the aim to create more recurring income. This service has been extended to non-Favco manufactured cranes. In year 2014, FFB opened a new Service Centre in Kemaman, Malaysia. Moving forward, we will see more growth coming from its crane maintenance service segment.

#4: NET CASH POSITION SINCE 2010

Since year 2010, FFB have been in a net cash position. In year 2012, the Company have been reducing its borrowings while piling up its cash. With the net cash of RM340.8 million, it can act as a cushion for FFB to survive the slow demand in its offshore crane. According to the Management, a portion of these cash is to be use for potential acquisition within the next one to two years. This can also mean that FFB’s growth is really slowing down as it requires acquisition of other companies in hope to boost the company’s financial performance.

#5: GROWING DIVIDENDS

FFB have been paying increasing dividend since 2008 and in year 2016, the dividend per share is maintained at RM0.15 per share despite a drop in revenue and net profit. This is partly because FFB’s major shareholder is Muhibbah Engineering (M) Berhad which owns 59.28% stakes in FFB, paying consistent dividend is a way of transferring funds within the Group for tax planning purposes.

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Thomas Chua
An equity investor and co-founder of Stocks Insights. Prior to this, he was attached with medium-size audit firm for 2 years working as an external auditor where he have performed statutory audit on companies from various industries including oil & gas, retailers, manufacturing, industrial products & machinery, etc. He is also involved in Enterprise Risk Management exercise and the internal control framework review for entities undergoing a listing exercise on Bursa Malaysia and SGX Catalyst Board.

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