FY21 results in line
U/G to BUY; TP lifted to MYR3.00
That Favelle posted a strong 40% YoY NP growth, remained financially resilient and steadily paying dividends in a pandemic-fuelled FY21 is an impressive feat, atypical for this industry. For this, we upgrade Favelle to a BUY, with a higher TP (+25%), on higher 0.7x EV/ order backlog of MYR650m (vs. 0.5x; MYR550m previously). This is realistic in a cyclical upturn period (rising capex play post-pandemic), with energy price at an elevated price (USD100/bbl) not seen since 2014.
FY21’s core net profit: +40% YoY
Favelle reported core net profit of MYR17m (+88% QoQ; +18% YoY) in 4Q21, which took FY21 core earnings to MYR48m (+40% YoY), 10% of our FY estimate. This is commendable amidst the challenging environment (MCOs, lock-downs, supply chain disruption). The YoY strength came from its cranes manufacturing ops (PBT: +21%), which accounted for 86%/ 78% of its order backlog (MYR524m) and core NP respectively. This more than offset for the weaker automation ops (PBT: -22% YoY) in FY21. Favelle
remained net cash (MYR187m @ MYR0.84/shr end-Dec 2021 and declared a final DPS of 8 sen (unchanged YoY; 37% DPR).
Key priorities: Grow orders, profits & manage costs
Our earnings estimates are unchanged, on a stronger FY22-23 outlook. The O&G space is seeing tangible recovery, both in sentiment and activities, fuelled by the sustained strength of the oil price. Orders are
expected to flow this FY and we expect Favelle to continue improving its orderbook visibility. Our estimates reflect higher order backlog of MYR580m and above in FY22-23. That said, managing costs will also remain one of its key priorities alongside orderbook sustainability.
Improving risk-reward
A stronger recovery in order backlog (>MYR650m; peak of MYR1,113m in May 2014) and higher-than-expected dividend payout (>50%) are some of the key catalysts, which would be a worthy consideration to re-rate. Valuation-wise, we prefer the EV/ order backlog valuation method over others, for it captures the cyclical nature of its orderbook and takes into account its balance sheet and cashflow aspects.