Favelle Favco Berhad (“FFB” or “the Company”) was 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 various industries.
For example, offshore oil & gas, construction, and Ports/ Wharf. It also provides maintenance services and rental of cranes. Its product range includes offshore cranes, tower cranes, crawler cranes and multipurpose wharf cranes.
FFB’s share price have dropped from its peak of RM4.00 per share in year 2014 to RM2.27 per share in year 2016. Shortly after, the company was hit by covid-19 outbreaks which paralyzes global economy.
Its share price went further down to RM1.71 before recovering back and continue its sideways movement. At the time of writing, the company’s share price was at RM2.18 per share.
Is there an opportunity? Here’s an updated key insights that you need to know about FFB before you invest in it:
#1: FAVELLE FAVCO 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|
|9)||Two International Finance Centre, Hong Kong|
Such track record is due to FFB having a reputation for speed and strength in its cranes. This also a reason why FFB was able to maintain a double-digit net profit margin from 2014 to 2019. This is despite being a capital intensive industry.
#2: COVID-19 IMPACT ON FAVELLE FAVCO BUSINESS
A significant portion of FFB’s order book comes from oil and gas sector. The Covid-19 outbreak has caused a slowdown in the company’s crane demand. According to the management, FFB’s order intake was the lowest in their public listing history.
Based on its latest 2020 earnings report, both revenue and net profit were down 19.4% and 46.2% respectively against 2019. Nevertheless, FFB’s revenue from rental of crane is still stable during the Covid-19 outbreak in 2020. This is the only segment that has positive growth.
The management expect the global oil and gas sector to recover slowly. As of 3 May 2021, the company has an order book of RM516 million. This will last till early 2022.
#3: ACQUISITION OF EXACT GROUP
In July 2018, FFB acquired 70% stakes in Exact Group for RM90.7 million. Exact Group comprises 4 companies. Namely Exact Automation; Exact Analytical; Exact Oil & Gas; and Sedia Teguh. According to Maybank Research Report , the principal business of each company is as follows:
Out of the 4 companies, the most profitable are Exact Automation. Based on MIDF research , about 50% to 60% of Exact Automation revenue is recurring in nature. This act as cushion to FFB’s other revenue segment that are experiencing a slowdown.
According to FFB’s Annual Report 2020 , Exact Group currently holds more than 20 active maintenance contracts. Most of it with oil & gas players in Malaysia.
#4: HEALTHY FINANCIAL POSITION
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 RM205.3 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 can be used for any potential acquisition in the future. 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: CONSISTENT DIVIDEND PAYMENT
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.
The company also pays dividend to its shareholders in year 2020 despite the challenges from Covid-19 outbreaks. This indicates how conservative is the Management when it comes to managing its cash.
That said, Favelle Favco is in a cyclical industry. Much of its financial performance is dependent on the oil & gas majors’ outlook. Any continuation of slow demand will lead to lower number of activities. This means lower orders for FFB.
There is also the concern on commodity prices that is increasing while US Dollar is weakening. This will lead to FFB incurring higher costs in the future. If you are investing into FFB, do take note on these risks.
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