FAVCO is a leading provider of cranes, comprising of 2 international brands namely Favelle Favco and Kroll. They offer a full range of cranes includes Offshore, Tower, Wharf and Crawler Cranes. They provide cranes all over the world, with the reputation of building 9 out of 10 of the world tallest building out there.
Recently, FAVCO has proposed to acquire 70% stake each in Exact Automation Sdn Bhd, Sedia Teguh Sdn Bhd, Exact Analytical Sdn Bhd, and Exact Oil & Gas Sdn Bhd. The companies, which are primarily involved in the provision of engineering services, industrial automation solutions, and specialised equipment mainly for the oil and gas industry, reported a combined audited PAT of RM15.3 million for the financial year ended Dec 31, 2016.
FAVCO believes that this proposed acquisition of the target companies will enhance and widen the earnings base of the company. It will also provide synergies to its future business growth.
FAVCO had a huge drop is the revenue for FY 2016 and TTM. This is due to the company’s high exposure (~70%) to the O&G sector.
However, we can see a steady increase in both operating and net profit margin. The company may have a certain level of moat hence the ability to maintain its margin even in the oil crisis.
The SG&A expenses are pretty stable at the range of 8% – 12%
FAVCO generates positive OCF (orange bar) for the last 10 FY with positive FCF (green bar) in 9 FY.
The earning quality is good with OCF (orange bar) higher than net profit (blue bar) in most of the year.
In the last 5 FY, most of the net profit is converted to FCF. Favco is a company which generates strong cash flow.
With strong cash flow, FAVCO has been consistently reducing its debt level (red bar) and increasing its cash level (green bar).
The balance sheet is liquid with almost RM360mil cash and RM30mil debt. Part of the cash will be used in the recent acquisition.
It’s ROE is at 11.8% and ROIC at 25.6%.
At current price of RM2.47 it gives an earning yield of 36.9%.
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