Stock Review – FAVCO (7229) (FAVELLE FAVCO BERHAD) - 2

Bursa Malaysia - 7229
Bloomberg - FFB:MK

Yahoo - 7229 .kl
Webpage - http://www.favellefavco.com/

Sector : Industrial Products and Services

Sub Sector :Industrial Engineering

Company Profile:

FAVCO comprises of two international brands, Favelle Favco and Kroll. FAVCO owned the world largest hammerhead crane and largest luffing tower crane.

FAVCO have 7 operating facilities around the world, Australia, Malaysia, Denmark, United State of America, China, Singapore and United Arab Emirates.

Revenue:

FAVCO revenues divided into two location, inside Malaysia and outside Malaysia. 

From the pie chart above, FAVCO market segment is about 45 % domestic market and 55 % international market.

Bar chart above shows revenue and operating margin of FAVCO from 2010 to 2018.

5 Years Annualise Growth of Revenue	-7.04 %
9 Years Annualise Growth of Revenue	-0.09 %

FAVCO is in declining business its revenue had decrease significantly from its peak in 2015. FAVCO 5 years annualise growth of revenue is -7.04 %.

The drop in revenue in cranes business might had cause FAVCO diversified into intelligent automation business on 3^rd July 2018 by invested RM 137,000,000 in the acquisition of 70 % of Exact Group.

Nett Profit

Bar Chart below shows FAVCO nett profit from 2010 – 2018.

5 Years Annualise Growth of Nett Profit	1.08 %
9 Years Annualise Growth of Nett Profit	10.56 %

FAVCO nett profit had lesser impact on the revenue drop for the recent year while maintaining positive annualise growth of 1.08 % for the past 5 years mainly because FAVCO able to increase its operating profit margin from 12.98 in 2015 to 16.08 in 2018.

Increase of operating profit might cause by FAVCO penetrate into small crane market and rental fleet.

Assets and Liabilities

FAVCO assets had growth at a constant rate at 9.6 % per year over the past 9 years while the liabilities is growing at a lower rate of 5.4 %.

Trade Receivables

FAVCO have high trade receivable past due that of around  70 % of the trade receivables in 2010 and drop to 50 % in 2018. This high trade receivable past due had put FAVCO on financial risk if not handle in proper manner and default could happen when the economy is able.

Financial Ratio

There would be few financial ratios to be look at here:

1) Interest Coverage Ratio (Green Bar Chart)

2) Cash Ratio (Blue Line Chart)

3) Current Ratio (Red Line Chart)

1) Interest Coverage Ratio

Interest coverage ratio measure how capable the company pay off the existing debt. With an interest coverage ratio above one mean the earnings before interest & tax (EBIT) is able to pay of the full amount of the financial cost of the year.

Despite lower EBIT in the recent year, FAVCO manage to maintain a high interest coverage ratio which mean FAVCO had low financial cost in the recent year.

2) Cash Ratio

As cash is the most liquid assets of the company, cash ratio is use to determine company ability to pay off short term liabilities using cash. Cash ratio above one indicates that company able to settle all current liabilities using available cash.

FAVCO cash ratio had increase over the period however FAVCO cash ratio is still below one. FAVCO current only managed to cover 60 % of its current liability with cash.

3) Current Ratio

Current ratio measures ability of the company to pay off short term obligation (current liabilities). Current ratio above one means the company able to pay off the current liabilities with current asset.

FAVCO current ratio had increase over the years and it is above one.

Turnover in Days

Let look into three types of turn over as follow:

1) Inventory Turnover (Blue Line)
2) Trade Receivables Turnover (Red Line)
3) Trade Payable Turnover (Green Line)

1) Days Sales of Inventory

9 Years Days Sales of Inventory Median (days) – 135

FAVCO days sales of inventory show a U shape which means FAVCO inventory (cranes) are very selling fast in 2013 (100 days) when the Malaysia construction is at its peak and slowly down to 165 days in 2018.

2) Trade Receivable Turnover (Days)

9 Years Trade Receivable Turnover (Days) – 131

FAVCO trade receivable turnover is quite consistence over the period with the average of 131 days

3) Trade Payable Turnover (Days)

9 Years Trade Payable Turnover (Days) – 135

FAVCO trade payable turnover pretty much following it days sales of Inventory. In 2018 FAVCO manage to get the trade payable turnover (145 days) higher than the trade receivable turnover (131 days). FAVCO is less likely to have problem with the cash flow despite 50 % of the trade receivables are past due in 2018.

Per Share Analysis

1) Earnings per share (sen) (Blue Bar)

2) Dividend per share (sen) (Red Bar)

3) Net total assets per share (Green Line)

1) Earnings per share

FAVCO earnings per share slow a decrease since year 2016.

2) Dividends per share

Although decreasing earnings since 2016, FAVCO still maintaining high dividend per share to the shareholder. In year 2016 - 2018 FAVCO management had decided to use 44% to 53 % of the earning to pay out as dividend while before that the dividend payout ratio is just around 18 % to 28 %.

3) Net total assets per share

FAVCO net total assets had growth consistently since with a rate of 11.02% per annum over the past 5 year.

Director’s Remuneration

Some company paid high remuneration to director despite low profit. Let see how much is FAVCO director’s remuneration in comparison to staff fee and operating profit.

On average FAVCO director remuneration is around 4.7 % of the total salaries expenses.

FAVCO director’s remuneration does not reduce despite poor performance since 2017 which make percentage against operating profit increase to 17.63 % instead of 11.68% on average.

Market Report

Date	Research House	Target Price
27/2/2020	MIDF AMANAH INVESTMENT BANK BHD	3.41
27/2/2020	ZJ ADVISORY SDN BHD	3.74
26/2/2020	MAYBANK INVESTMENT BANK BHD	3.65
	Average Target Price	3.60

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