Faber gains ground in hospital support services


PETALING JAYA: The 21-storey Faber Towers are perhaps the country’s first twin skyscraper. Constructed in mid-80s, it is a well-known landmark in Taman Desa, a leafy suburb south of Kuala Lumpur city centre.

First-time visitors to the area, however, would probably need to ask around for directions to get to the building. The towers too, needs sprucing up to keep up with changing times.

Its owner, Faber Group Bhd, which is headquartered in the building, has certainly changed a lot in the last two years.

After years of carrying deadweight assets, the group has tidied up its financial books and is set to reap the rewards of a more focused organisation.

First six months ended June 30, 2010 results showed revenue from abroad generating about a third the group’s total sales of RM454mil.

This segment, according to Faber Group managing director Adnan Mohammad, will continue to grow as it steps up its expansion plans.

Currently, most of its overseas turnover came from integrated facilities management (IFM) contracts secured in the United Arab Emirates (UAE), where it provides hospital support services (HSS) to 12 hospital and clinics in Abu Dhabi and Sharjah.

Latest figures showed revenue contribution from the UAE jumped to RM149mil in the second quarter ended June 30 from RM8.9mil in the previous quarter.

“There is still a lot of growth opportunities for us in the Middle East, and at the same time we are expanding rapidly in India,” Adnan told StarBiz in an interview.

To consolidate its operations in India, Faber plans to acquire the remaining 49% minority stake in its subsidiary Faber Star Facilities Management Ltd.

Adnan said the target was to grow revenue from India to RM100mil a year in the near future. During the first half of the year, India contributed RM22mil in sales.

In India, Faber has secured basic HSS contracts with several hospitals operated by Apollo Hospitals Enterprise Ltd and Fortis Group.

He added that the group’s capital expenditure to fund this ventures would remained “minimal” as the bulk of the investment would be on human capital.

“The local HSS concession gave us a solid platform to pursue growth overseas,” Adnan said.

Some analysts opined that Faber’s link to Khazanah Nasional Bhd’s stable of healthcare companies was grossly untapped. It also begged the question on where Faber will fit in inside Khazanah’s grand scheme of things.

Khazanah had made known of its intention to focus on healthcare as one of its core investment.

Recently, it had increased stakes in Singapore-listed Parkway Holdings after it acquired shares from Fortis Group and other minorities, but sold drug maker Pharmaniaga Bhd to Bousted Holdings Bhd.

It is also a substantial shareholder in Mumbai Stock Exchange-listed Apollo, which operates 37 private hospital in India. The state investment arm, through UEM Group, has a 34% stake in Faber.

Khazanah also has a majority stake in Pantai Holdings Bhd, which has a network of nine hospital in the country as well an HSS concession to serve government hospitals in the southern region of the country.

This concession, along with those held by Faber and Radicare (M) Sdn Bhd, will expire in October next year.

Faber’s own HSS contract entails the provision of services to 79 government hospitals in four states up north, as well as those in Sabah and Sarawak. Radicare manages support services at 49 government hospitals in Selangor, Kuala Lumpur, Terengganu, Kelantan and Pahang.

In March this year, StarBiz reported that Pantai was willing to let go of its local concession business to focus on running hospitals. There is lingering speculations that Faber might be interested to take over Pantai’s HSS concession, once the current crop of HSS contracts expire.

During the interview, Adnan confirmed that the Faber had commenced negotiation with the Government to extend its own concession agreement.

He declined to say whether the group was eyeing for a bigger pie.

Analysts, like those at OSK Research and Inter-Pacific Securities believed that Faber’s current concession would be extended, although the terms might varied from the one signed 14 years ago.

The local concession alone generated more than half of the group’s total revenue, while the whole IFM division accounted for 85% of the group’s total revenue. The balance came from property development.

Recent property launches by the group includes the last of its nine-acre landbank in Taman Desa.

These lakefront low-density properties are priced north of RM2mil per unit. Adnan said the take-up rate was up to expectations, with only reserved units yet to be sold.

The group and a joint-venture partner had also recently started selling some 150 units of semi-detached houses in Kepong at the starting price of RM1.5mil each.

The project has a gross development value of RM250mil. The fourth and fifth phase – at a site known as Laman Rimbunan – are expected to be completed by the third quarter of 2013.

Analysts said the key re-rating catalyst for Faber would be the outcome of its local HSS concession talks.

The group’s proven track record would work on its favour, they said.

Meanwhile, a cash pile of RM170mil as at the end of June and a healthy balance sheet would provide Faber the flexibility to respond to any merger and acquisition opportunity.

At last Friday’s close of RM2.95, Faber’s shares were valued at just a shade below 10 times its projected earnings for year ending Dec 31, 2010.

Based on its key performance indicator target for FY10, Faber expects revenue to grow between 12% and 15%, while return on equity to range between 15% and 18%.

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