Monday, March 21, 2011

Faber ... Mar11

Faber Group Bhd is positive that its 15-year concession for government hospital support services (HSS), which expires in October 2011, will soon be renewed for another 15 years based on the group’s experience and track record.

Adnan Mohammad, Faber Group managing director, said the company was well-positioned for the concession renewal based on of its financial ability.

They are waiting for a detailed discussion with the authorities. It is just a matter of time. The ball is now in the government’s court.

Adnan declined to disclose the contents of the renewal application but stressed that its proposition was “status quo” in terms of services for government hospitals in six states, including Sabah and Sarawak.

Currently, Faber’s 15-year contract entails the provision of support services to more than 70 government hospitals in Malaysia. The group is a key player in the integrated facilities management (IFM) and property development sectors.

Faber’s financial results in 4Q2010 ended Dec 31, show the group’s net profit dropping 93.2% to RM2.9 million from RM42.56 million in 4Q2009 on the back of a lower revenue of RM203.94 million versus RM303.93 million. The lower 4Q profit was mainly due to additional costs recognised for IFM operations in the United Arab Emirates as well as an adverse non-recurring one-off item amounting to RM10.6 million.
For FY2010, Faber’s net profit dipped 4.7% to RM78.78 million from RM82.68 million in FY2009 while revenue rose 10.4% to RM888.84 million from RM805.28 million. Revenue from its IFM Division rose by RM137.2 million, but revenue from its property division declined by RM53.4 million.

Faber’s 4QFY10 earnings were significantly affected by the contraction of earnings before interest and tax (Ebit) margin of 8.6 percentage points quarter-on-quarter, mainly due to higher provisions for its UAE contracts as management prefers to take a more prudent approach. Due to the provision made in 4QFY10, management mentioned it is possible that Faber would be able to reverse some of the provision in 1HFY11 once the actual costs are finalised.

To recap, there is still RM100 million of work orders, which have been completed but not billed as at December 2010. Following the non-renewal of two of its UAE contracts, Faber will refocus on expanding its foothold in managing hospitals in UAE. Currently, the company manages 12 hospitals and clinics in UAE and is keen to expand to military hospitals there.
Faber, which is spearheading the Energy Performance Management System (EPMS) pilot project, was likely to see revenue contribution from the project beginning 3Q2011. The pilot project seeks to ensure the efficient use of energy in government buildings.

Faber was expected to complete the energy audits of five hospitals by April 2011 and would then present and submit its propositions to the Performance Management and Delivery Unit and the Ministry of Energy, Green Technology and Water.

By May or early June 2011, the project involving the five energy audits should be rolled out. But this is subject to the negotiation and payment mechanism which have to be sorted out. The group must also get the nod from the Ministry of Finance among others.

Although Faber was eyeing more buildings identified by the government for improvement in energy efficiency, its priority was to kick off with the five hospitals under the pilot project and ensure that progress there would be a stepping stone for the group in securing contracts for more buildings.

The government has identified 120 buildings nationwide, including public hospitals and institutions of higher learning, whose utility bills in total amount to RM700 million a year. The EPMS project is expected to reduce their utility bills by 10% a year.

Industry observer said that HSS contract would be renewed and announced in a matter of time based. It is unlikely that the concession would not be renewed given that Faber has poured in substantial investments since the concession took effect, and the fact that the company has the expertise and logged in a track record in providing health support services.

On the EPMS pilot project, the move was is in line with Faber’s strategy to diversify its revenue within the scope of its IIFM segment. Faber had the capability to undertake such a venture as it was related to and complemented its existing business.

With the project still at a preliminary stage, management has declined to give more details with regard to its financial impact. However, assuming a 50:50 savings sharing arrangement, this project will generate some RM35 million to RM70 million per annum to Faber’s topline. Although we expect the earnings contribution for this segment will not be significant to group’s earnings, this could create another revenue stream for the company and reduce earnings dependence from concessions

Faber’s energy audit on five hospitals to be completed in April 2011, if successful, could involve up to 120 buildings identified by the government under the EPMS project. Implementation of the project is subject to finalisation of the company’s business model with the government. However, initial capital expenditure and revenue stream are undisclosed pending further discussion with Pemandu.

On property development, Faber’s management disclosed that via its unit Faber Development Holdings Sdn Bhd, the gross development value (GDV) of its current projects amounted to RM509.7 million while projects in the pipeline was expected to generate RM508.5 million in GDV.

Risks include failure to secure an extension to the concession agreement with the
government; and delays in property launches and approvals, which could affect revenues from the property segment.

Meanwhile Faber has proposed to cancel 75 sen of the existing par value of its RM1 share in a move to reduce its accumulated losses. Based on its paid-up share capital as at Dec 31, 2010 of RM363.0 million, the credit arising from the reduction of the par value would be about RM272.3 million.

The proposed share premium reduction will involve the reduction of the entire balance of about RM116.0 million in the company's share premium account. The credit arising from the said reduction in share premium of the same amount will be used to set-off the accumulated losses of Faber Group.

Its unaudited accumulated losses as at Dec 31, 2010 totalled RM422.1 million, which had declined from the audited losses of RM450.60 million as at Dec 31, 2009.

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