Faber

It is set to boost its integrated facility management business when its acquisition of major shareholder UEM Group Bhd’s asset and facility management (AFM) businesses is completed in the second half of 2014.

The proposed acquisition of two of UEM’s cash generating units – PPROPEL and OPUS Group will transform Faber into Malaysia’s largest AFM player.

Propel is in the business of infra maintenance, with its core expertise in highway maintenance. It has also expanded into other sectors of the industry such as airside maintenance, commercial building maintenance and plant shutdown maintenance in the oil and gas industry.

Opus is primarily involved in asset development and management, and consultancy services for road and civil and building related works. It has operations spanning across Malaysia, New Zeland, Australia and UK and Canada.

Faber is in need of new businesses as its current operations (May 2014) are stagnating.

The group is known for its hospital support services provided to government hospitals and healthcare institutions as well as the development of the already matured Taman Desa neighborhood in KL. As its landbank is depleting, Faber had highlighted that its future earnings from HSS could decline as it would hold only a 40% stake in its latest joint venture HSS concessions in Sabah and Sarawak.

The acquisition of 100% equity interest each in Propel and Opus will amount to rm1.15 billion.

As at Dec 31 2013, Faber’s cash pile stood at rm487 million, with virtually zero borrowings.

Since the acquisition will be earnings accretive, Faber’sFY2014 earnings per share could improve.

Till May 2014 it has bagged rm169 million worth of piling contarcts, bringing its order book to rm300 million. One major coup was a rm74 million contract to undertake foundation works for the proposed 118 storey Warisan Melaka tower project in KL.

The group was sitting on a net cash of rm110 million as at Dec 31 2013.

Faber/UEM Group

Faber Group Bhd’s earnings base is expected to get a shot in the arm from the injection of Opus Group Bhd and Projek Penyelenggaraan Lebuhraya Bhd (Propel) into it.

UEM Group Bhd had proposed to dispose 100% equity interest each in Propel and Opus to Faber for RM1.15bil via the issuance of 450.5 million new Faber shares at an issue price of RM2 per share as well as a cash consideration of RM250mil.

Calculations show that Faber’s share base would increase to 813.5 million from the current 363 million upon the completion of the proposal, with UEM Group increasing its effective stake in the company to 70.7% from 34.3% currently.

Financial year 2014 (FY14) earnings per share (EPS) would improve by 46.5% despite the enlarged share base after factored in a potential combined net profit contribution of RM110mil from Propel and Opus. This would more than triple Faber’s previous FY14 earnings base of RM48.2mil.

Nevertheless, should the proposals materialise, Faber would emerge as Malaysia’s largest asset and facility management player with a presence in three core sectors – healthcare, infrastructure and commercial.

Opus is mainly involved in the asset management of transportation, infrastructure and built environment assets and facilities, operating in Malaysia, New Zealand, Australia, the United Kingdom and Canada.

Notable projects include consultancy services for the Kelana Jaya-Ampang LRT extension, highway maintenance and management in New Zealand and road asset management in Australia.

Opus also owns a 60% stake in Opus International Consultants Ltd, which is listed on the New Zealand stock exchange with a market capitalisation of NZ$256mil (RM640mil).

Propel, on the other hand, is the largest highway maintenance company in Malaysia, having been the maintenance provider for the North-South Expressway since 1988.

Faber

Sources say there are three concessionaires, including Faber Medi-Serve, Pantai Medivest and Radicare, were asked to submit a request for proposal (RFP) for renewal of their concessions.

There have been concerns that the concessions, which expire on Oct 28 2011, would not be renewed. However, based on Pharmaniaga’s experience in 2010, the concession may only be renewed for 10 years, rather than our assumption of 15 years.

This may however, be partly mitigated by the likelihood that the concessionaires may be able to charge higher service fees for more technical services such as maintenance of diagnostic equipment, although this could be offset by lower fees for more general cleaning and laundry services.

Speculation of Faber losing Sabah and Sarawak service areas has resurfaced. Assuming that new parties are brought in as 49% JV partners for the two states, and Faber continues to do the work as a subcontractor.

The risks include shorter renewal period; and 2) risk of losing some Sabah/Sarawak earnings