Faber stock takes a hit

PETALING JAYA: Faber Group Bhd was the biggest loser yesterday with its shares tumbling 44 sen to RM2.19.

This follows the company's announcement on Wednesday that its Abu Dhabi contracts, which had an estimated combined worth of RM184mil per annum, were not renewed.

Analysts, meanwhile, have slashed their earnings estimates for the company. OSK Research said in its note that the news came as an “unfavourable surprise.”

According to the research house, the contracts contributed about RM200mil to Faber during the nine-month period of its financial year ended Dec 31, 2010 (FY10), with another RM20mil expected to be recognised in the final three months (fourth quarter).

“Management has guided that despite the non-renewal, it expects Faber to recognise RM100mil in revenue from the two contracts in FY11, based on its outstanding work orders.

“As we had initially estimated that these two contracts would contribute only RM180mil in FY11, we have cut our revenue forecast by 8.2% (for FY11),” it said.

OSK said given that the contracts contributed higher margins, the research house was lowering its overall margins assumption for Faber and raising its effective tax rate assumption since the contributions (from the jobs) was tax-free.

“Following the adjustments, our net profit forecast for FY11 is cut by 12.6%.”

In two separate announcements on Wednesday, Faber told Bursa Malaysia that it had received letters from the Department of Municipal Affairs, Western Region Municipality (WRM), Emirate of Abu Dhabi, giving notice of non-renewal of its existing integrated facilities management contracts worth 154 million Arab Emirates dirham or AED (RM129mil) and 65.6 million AED (RM55mil) per annum respectively.

These contracts will expire in June and April respectively with no penalties to either party. Faber could not be contacted for comments at press time.

Meanwhile, OSK noted that with WRM expected to invite a fresh round of tenders for its infrastructure contracts, the potential upside catalysts for Faber would be the possibility that the company would secure new contracts from WRM, as well as renewal of its concession in Malaysia which could be announced at any time.

“We also believe that the revenue shortfall resulting from non-renewal of the contracts will be partly mitigated by improving prospects for Faber's property division.”

HwangDBS Vickers, in its research note yesterday, said it was slashing Faber's expected FY11 and FY12 earnings 29% and 45% respectively on account of the non-renewal of the contracts.

“Taking a conservative stance, we are also cutting our new contract assumptions.

“Thus, (its facilities management) business is no longer the second major contributor to earnings,” it said, adding that Faber's share of pre-tax profit is expected to shrink to 4% in FY12 from 38% in FY10.

According to its note, HwangDBS Vickers expects Faber's pre-tax profit to hit RM139mil in FY10.

RHB Research in its report yesterday said it was lowering the company's expected FY11 and FY12 earnings forecasts by 11.8% and 28.3% respectively to reflect the news.

The research house, however, added that there was still RM100mil-worth of work to be completed until expiry of the contracts.

“Faber will also 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,” it said.

Faber is a key player in integrated facilities management and property solutions sectors