Friday, September 23, 2011

Faber dips, RHB Research cuts FV to RM1.63

KUALA LUMPUR: FABER GROUP BHD []'s shares fell at the midday break on Friday, Sept 23, in line with the weak broader market, while RHB Research Institute reduced its fair value to RM1.63 from RM2.19.

At 12.30pm, Faber was down five sen to RM1.43. There were 110,500 shares done at prices ranging from RM1.41 to RM1.46.

The FBM KLCI fell 15.35 points to 1,372.46. Turnover was 531.92 million shares valued at RM838.78 million. Losers beat gainers 620 to 118.

RHB Research said it heard three concessionaires, including Faber Medi-Serve, Pantai Medivest and Radicare, were asked to submit a request for proposal (RFP) for renewal of their concessions.

'This is good news as there have been concerns that the concessions, which expire on Oct 28, would not be renewed.

'However, based on Pharmaniaga's experience last year, we believe the concession may only be renewed for 10 years, rather than our assumption of 15 years,' it said.

The research house said this may however, be partly mitigated by the likelihood that the concessionaires may be able to charge higher service fees for more technical services such as maintenance of diagnostic equipment, although this could be offset by lower fees for more general cleaning and laundry services.

'We are concerned that speculation of Faber losing Sabah and Sarawak service areas has resurfaced. If we assume new parties are brought in as 49% JV partners for the two states, and Faber continues to do the work as a subcontractor, this would reduce our FY12-13 earning per share (EPS) forecasts by 7.3%-8.6%,' it said.

RHB Research lowered its sum-of-parts fair value estimate to RM1.63 (from 2.19) to impute: 1) a shorter renewal period; and 2) risk of losing some Sabah/Sarawak earnings.

'Although the concession renewal is positive, we believe the market may continue to focus on the negative aspects, especially in light of the uncertain global economic environment. Therefore, although Faber's share price has dropped by 17.7% over the last month, we believe there could be further weakness ahead. We thus downgrade our call on the stock to Market Perform, from outperform,' it said.

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