PETALING JAYA: Favelle Favco Bhd’s strong order book is expected to sustain the group’s earnings in the second half of 2021.
This is despite Brent crude oil prices expected to trade range-bound until the end of the year.
According to MIDF Research, the recent natural gas price hike is contributing to the possibility of more offshore drilling projects, which should benefit Favelle Favco.
The brokerage reiterated its positive view on the industrial engineering company for its robust order book and maintained “buy” on Favelle Favco.
“We believe the ongoing and recently secured contracts will allow the group to sustain its earnings in the second half of 2021,” it said.
“We opine that growing demand for oil and gas among consumers and industrials globally will improve the energy market, hence increasing the need for offshore and shipyard cranes,” the research house added.
MIDF Research, however, lowered its target price for Favelle Favco to RM2.72 from RM3 due to the change in earnings forecast and rolling over its valuation to the financial year 2022 (FY22).
The new target price is based on pegging an unchanged price-to-earnings ratio of eight times to the revised forecast earnings per share for FY22 of 34 sen, it said.
“We revised our FY21 and FY22 earnings forecast downwards by 16.6% to RM69.2mil and 1.4% to RM88.7mil, respectively, to take into account the delays of projects work due to the movement restrictions caused by the pandemic,” MIDF Research said.
It also noted that the increasing demand for natural gas had revived interest on renewables, which is an area that is gaining worldwide traction.
“This could be another potential opportunity for Favelle Favco as part of its sustainability move for the green movement,” MIDF Research said.
“The company’s rental fleet and automation services holds an important role in contributing to the call for energy transition in the oil and gas sector with its liquefied natural gas and renewables-related projects,” it added.
The bulk of Favelle Favco’s orders are from clients in the oil and gas industry, shipyard, construction and wind turbine industries.