Faber ... Mar10 ...Continue.

S & P Results Review & Earnings Outlook

• Faber’s 2009 results were above expectations. Turnover and net profit of MYR805.3 mln (+21.8% YoY) and MYR82.7 mln (-46.9% YoY) exceeded our estimates of MYR658.2 mln and MYR57.9 mln respectively.

• The significantly improved results were attributed to the earlier-thanexpected commencement of the MYR142.1-mln infrastructure maintenance contract in Abu Dhabi in 4Q09, ahead of our 1Q10 projection. Faber’s results were also boosted by variation orders on its domestic healthcare Facilities Management Services (FMS) with the
opening of three new hospitals in Kedah and Sarawak. 2009 gross margin was relatively stable at 30.4% (vs. 29.6% in 2008).

• Faber’s prospects have been strengthened by the renewal of a MYR65.5 mln FMS contract for low cost houses in Abu Dhabi, which will contribute to 2010 and 2011 earnings. Domestic FMS earnings will also be boosted by the services rendered to the three new government hospitals. Property development earnings, meanwhile,
are poised to grow over the next two years, with the launch of MYR500 mln worth of new high-end properties in the Klang Valley.

• After factoring higher earnings from its Abu Dhabi FMS contracts, variation orders on government hospitals and improved property development earnings, we raise our 2010 net profit estimate to MYR114.2 mln (from MYR84.8 mln). We also introduce our 2012 net profit forecast of MYR135.3 mln.

Recommendation & Investment Risks
• We maintain our Buy recommendation on Faber, but lift our 12-month target price to MYR2.10 (from MYR1.60) after raising our earnings estimates.

• Our target price remains based on a sum of parts valuation, where we ascribe unchanged target PER multiples of 7x and 5x to its 2010 (unchanged) FMS and property development earnings respectively. The target PER multiple of its FMS operations is similar to the implied PER paid in the acquisition of the remaining 30% stake in Faber Medi-Serve. Meanwhile, the property division’s target multiple remains at the
lower end of the 5x-7x peer average range for the small scale of its projects. Our target price also includes a net DPS estimate of 4.5 sen (from 3.0 sen), which is similar to the quantum it declared for 2009.

• We like Faber for the improving outlook of its FMS operations that have been strengthened by the infrastructure maintenance and FMS contracts in Abu Dhabi. We believe this could be a prelude for more FMS contracts in the Middle East, where it is fast establishing a strong foothold. Furthermore, its prospective 2010 and 2011 PERs of 5.6x and 4.8x remain attractive relative to the earnings growth of 38.1% and
18.5% on offer respectively.

• Risks to our recommendation and target price include: (i) rising cost affecting the margins of its FMS operations, (ii) inability to renew its concession agreement to provide FMS to government hospitals and contracts in Abu Dhabi, and (iii) delays in its property launches.