PP 7767/09/2011(028730)

31 March 2011

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Co mpa ny Updat e
31 March 2011
MARKET DATELINE

Faber Share Price

Fair Value
:
:
RM1.89
RM2.79
Risk Of Losing Concession Is Relatively Small Recom : Outperform
(Upgraded)

Table 1 : Investment Statistics (FAB; Code: 1368) Bloomberg: FAB MK

Net Core Core EPS Core Net
FYE Turnover Profit EPS EPS Growth PER C.EPS P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (%) (%) (%)
2010 888.8 78.8 21.7 21.7 -4.7 8.6 - 1.6 0.0 18.8 4.3
2011f 907.3 83.3 23.0 23.0 5.8 8.1 24.0 1.4 0.0 17.4 4.3
2012f 911.4 80.1 22.1 22.1 -3.9 8.4 27.0 1.3 0.0 14.9 4.6
2013f 897.2 76.8 21.1 21.1 -4.1 8.8 27.0 1.2 0.0 13.0 4.6
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES Estimates

♦ Negative news from the non-renewal of UAE contracts has been

priced in. Following the announcement of the non-renewal from the two Issued Capital (m shares) 363.0
of Faber’s UAE contracts, Faber’s share price plunged by 23% and has Market Cap (RMm) 686.1
Daily Trading Vol (m shs) 1.2
since maintained at this level. We believe all the negative news from the
52wk Price Range (RM) 1.58-3.27
non-renewal of UAE contracts has been priced in. As such, Faber will now
Major Shareholders: (%)
refocus on managing its 12 hospitals and clinics in the UAE while at the
UEM Group 34.0
same time expanding to military hospitals there. Universal Trustee 23.4
♦ Risk of losing the concession is relatively small. Faber’s 15-year
concession to provide hospital support services in government hospitals is
FYE Dec FY11 FY12F FY13F
expiring in Oct this year and the company is currently awaiting approvals
EPS chg (%) - - -
from the Ministry of Health (“MOH”) and the Economic Planning Unit
Var to Cons (%) (4.3) (18.3) (21.9)
(“EPU”). We reiterate our view that the risk of losing the government
concession is relatively small. As it stands, Faber has shown competence in PE Band Chart
service delivery, installation and maintenance of the system for 14 years,
and managed costs without any unit price increase over the period.
♦ Cleaning up its balance sheet. Faber recently proposed to reduce its PER = 15x
PER = 10x
accumulated losses via cancellation of 75 sen par value of each existing PER = 5x
share of RM1 each. In addition, the company proposed to wipe out its
share premium account, which stood at RM116m as at Dec’10. As a result,
Faber’s share capital will be reduced to 90.8m from 363m previously while
its accumulated profit will now stand at RM361.6m from a loss position of
RM25.8m. While there is no direct impact to shareholder’s funds, this Relative Performance To FBM KLCI
exercise could result in greater flexibility in determining future dividend
payment payout given that cash dividends may only be paid out of the
current year profits and/or retained earnings of a company. We, however,
maintained our FY11-13 gross dividend forecasts of 8-8.5 sen, which FBM KLCI
represents a payout of 26.1-30.2% respectively.
♦ Risks to our view. 1) Failure to secure an extension to the concession
Faber

agreement with the Government; and 2) Delays in property launches and

approvals, which could affect revenues from the property segment.
♦ Forecasts. Our earnings projections remain unchanged.
♦ Investment case. We have removed the 25% discount imputed in our
fair value estimate to reflect our confidence in Faber getting the concession
renewed as our forecasts are already conservative, having downgraded the
Sabah/Sarawak portion to sub-contractor work with lower margins.
However, if the concession is renewed as it is (including Sabah and
Sarawak), our SOP valuation will increase to RM2.89 on a best-case basis
vs. RM2.06 if Faber loses the concession in Sabah/Sarawak. As such, our Yap Huey Chiang
fair value has been raised to RM2.79 (from RM2.22), which is based on (603) 92802179
SOP valuation. Given the 50% potential upside to our fair value, we yap.huey.chiang@rhb.com.my
upgrade our recommendation on the stock to Outperform, from market
perform previously.

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 31 March 2011

Table 2. Sum Of Parts Calculation

Valuation basis FV (RMm) Per share (RM)
Concession IFM DCF 785.7 2.16
Non-Concession IFM 14x FY11 earnings 276.5 0.76
Property DCF 59.0 0.16

Add : Net cash/ (Net Debt) (End-4QFY10) (108.0) (0.30)

Total cash at holding company levels 46.0
Total debt at holding company levels (154.0)
SOP 1,013.20 2.79
Shares (m) 363.0
Source: Company data, RHBRI estimates

Table 3. Earnings Forecasts Table 4. Forecasts Assumptions

FYE Dec (RMm) FY10a FY11f FY12f FY13f FYE Dec (RMm) FY11f FY12f FY13f
Turnover 888.8 907.3 911.4 897.2 Revenue:
Turnover growth (%) 10.4 2.1 0.4 (1.6) Concession 562.2 543.5 570.7
EBITDA 135.8 168.4 166.4 162.7 Non-concession 195.1 117.9 126.5
EBITDA margin (%) 15.3 18.6 18.3 18.1 Property 150.0 250.0 200.0
Dep & Amort 0.0 (24.7) (26.4) (28.1)
EBIT 135.8 143.7 140.0 134.6
EBIT margin (%) 15.3 15.8 15.4 15.0 EBIT:
Net interest expense (6.6) (6.7) (6.7) (6.7) Concession 90.0 84.2 85.6
Associates 0.0 0.0 0.0 0.0 Non-concession 31.2 18.3 19.0
Pretax Profit 129.2 137.0 133.4 127.9 Property 22.5 37.5 30.0
Tax (25.8) (28.8) (28.0) (26.9)
Minorities (24.6) (24.9) (25.3) (24.3)
Net Profit 78.8 83.3 80.1 76.8
Core net profit 78.8 83.3 80.1 76.8

Source: Company Data, RHBRI estimates Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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 31 March 2011

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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