Monday, September 8, 2014

Favelle Favco (FAVCO, 7229) - business growing, share price yet to catch up

About 2 years ago, I mentioned about Favelle Favco (FAVCO, 7229) here.

Now, its share price already more than doubled up (29-Nov-2012 closing: RM1.47, 5-Sep-2014 closing: RM3.31, dividend paid between the period: RM0.18. Gain = 137.41%).

This stock counter caught my attention again, as its business continues growing over the period, but its share price topped at RM3.89 on 9 April 2014, after that dropped to RM3.24 on 9 May 2014, and has been side-lining until now. In fact, its share price dropped a bit during the last week in August 2014, and has been struggling between the range of RM3.25 to RM3.39 recently.

Below is its 3 year price chart, showing that despite its share price is laggard behind its business growth speed, but it is still keeping on moving up at a steady rate. In any month of the year, its share price in current year is always higher than previous year.

Now, lets see the changes in its fundamental over the past 2 years.

Traditionally, the 1st quarter is a slow period for FAVCO, which hopefully will improve in 2nd quarter, and becoming better in 3rd quarter, then slow down a bit in 4th quarter. This is reflected in its quarterly profit margin as shown in the table above.

The clients of FAVCO, who specialized in cranes, are mainly from Oil & Gas sector, and also from Construction (i.e. high-rise building), Marine (i.e. ship terminals), etc.

Its revenue derived from its outstanding order booked. Once the order booked materialized into revenue, the outstanding order booked will decrease. At the same time, new projects are secured with new Purchase Order (PO) received, which will then add on to the order booked figure subsequently.

FAVCO will announced their new substantial PO received in Bursa Malaysia Announcement website. PO with smaller value are not announced, but will be included in the outstanding order booked figure announced in the next quarterly report.

We can see that FAVCO's outstanding order booked has increased to above billion since the 3rd quarter of 2013. Over the past 2 years. every quarter in between the quarterly reports announcement, FAVCO had at least one announcement on new substantial PO received without fail. This mean they continue to get new business throughout the year, while fulfilling the secured projects on hand.

FAVCO announced their 2014Q2 report on 25 August 2014. This is a very good result, as its revenue and net profit growth are substantial, be it compared to last quarter or to same quarter in last year. It net profit broke a new record high. Its profit margin also gone above 10% for the 2nd time. However, its share price has not react to this good result, probably dragged by overall market sentiment.

Note that on 3 September 2014, FAVCO announced new substantial order booked amounting RM119.9 million. There are 2 more months to go before they announce the next quarterly report in November 2014. If within the next 2 months, they announce another new substantial order booked, then it will be confirmed that their outstanding order booked is breaking a new record high!

On 5 September 2014, FAVCO's share issued is 216.51 million. Its trailing 4 quarters net profit is RM84.228 million. We can calculate its EPS to be RM84.228/216.51 = 38.90 sen. With this, we can calculate its PE ratio on 5 September 2014 closing to be 331/38.90 = 8.5.

As long as FAVCO's business continue to grow, it is a matter to time for its share price to catch up and reflect its fundamental strength.

Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in Bursa Malaysia.


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