Favelle Favco contract win reaffirms O&G sector recovery

The newly acquired contracts are expected to contribute positively to the group’s earnings and net assets

by NUR HAZIQAH A MALEK / graphic by TMR

FAVELLE Favco Bhd’s (FFB) contract wins are a sign of recovery for the oil and gas (O&G) sector, according to analysts.

MIDF Amanah Investment Bank stated that at least five out of the eight contracts clinched by FFB recently are for offshore activities, including the compressor system and upgrade works.

“We concur with FFB’s positive stance on recovery from the impact of Covid-19 pandemic with the vaccine rollout in the countries.

“The group will continue to be vigilant of the economic recovery, especially in the crane sector.

“Brent crude oil had been elevated in the first half of 2021 (1H21) with the gradual curb of the pandemic and the increasing demand for the commodity, in addition to the recent OPEC+ decision to increase oil supply to 400,000 barrel per day in the next few months,” MIDF noted in a report yesterday.

It added that the improved energy market situation would give FFB’s clients enough assurance to start offshore projects again.

Moreover, MIDF added that FFB has the ability to deploy its cashflow in various ways, including investment in its rental fleet and new crane models, as well as adding new external ventures into its portfolio.

“We restate that FFB will be able to sustain its operations and will definitely be occupied with more orders well into financial year 2022 as demand for oil recovers,” it said.

The purchase orders are set to grow in 2H21 after FFB’s subsidiaries received eight purchase orders for offshore cranes, tower cranes, compressor system, solar system and upgrading.

The combined value of the orders secured is RM121.1 million while the expected date of delivery ranges from the third quarter of 2021 (3Q21) to 3Q22.

As of May 3, 2021, FFB’s orderbook stood at RM516 million, which gives the group a baseline until 1Q22.

“With the additional purchase order, we are estimating its latest orderbook at RM637 million.

“FFB continues to structure its orderbook around high-speed heavy lifting cranes for offshore exploration and production activities, and wharf operations, which makes about 75% of the main drive of the group,” MIDF stated.

It added that the remaining 25% is from FFB’s Intelligent Automation division, which oversees automation, control and instrumentation, rotating machinery systems, renewable energy systems, gas and liquid analysis systems, and industrial information digital systems.

The newly acquired contracts are expected to contribute positively to the earnings and net assets of FFB for the financial year ending Dec 31, 2021, and beyond, MIDF noted.

The investment bank maintained its ‘Buy’ rating on FFB with a target price of RM3 based on its contract winning streak and stable orderbook, consistent dividend payout and well-equipped digitalisation and energy transition ventures for the sector.

“The ongoing uncertainty with the Covid-19 pandemic and volatility of the OPEC+ supply chain are still risk factors to FFB’s operating environment. We believe with the additional contracts secured, FFB is able to sustain its earnings well into FY22,” MIDF said.

It also opines demand for oil among consumers and industrials will gradually be restored in the short term, hence increasing the need for offshore and shipyard cranes to return to the market.

FFB’s Exact Group currently holds over 20 live maintenance contracts with most oil majors in Malaysia, and supplies hybrid solar and wind turbines for offshore facilities as well as various automated analytical and maintenance systems including pipeline monitoring and plant intelligence solutions.

“This division is not only on par with IR4.0, but also contributes to the call for energy transition in the oil and gas sector,” it said.