Favelle Favco

Favelle Favco is an industrial crane manufacturing and sales company which began making cranes in Australia about 40 years ago. It is currently owned by Muhibbah Engineering which bought the company in 1995. In 1997 it bought over Kroll Cranes from Denmark. The company was listed in the KLSE in 2006.


As an industrial crane company, it has made and supplied cranes for the oil and gas industry, shipyards and construction sites. It is known to have supplied cranes for the construction of the Petronas Twin Towers as well as the Taiwan 101. Their cranes are currently being used in the construction of the Freedom Tower in New York as well. The oil and gas sector still remains as their majority customers with lesser shares to shipyards and construction.


62% of their revenues are from overseas sales according to FYE2009 figures while their local revenues aren't subjected to tax due to their pioneer status. The figures FYE2009 while looks good compared to last year, it also shows the strain they are under. Their orderbook has shrunk to it's lowest level below RM500 mil and 2010 will be a challenging year for them. With the strengthening prices of oil, they can only hope the industry will lift their profits higher.

Their latest quarterly report shows their cash levels have risen almost 2 times more than what they had in their best year which is 2008. This is a good sign of consolidating their current assets possibly for repayments of debts to further pare down their interest payments for their short term borrowings which constitutes almost all their debts.

Profit wise their revenue is 10% lower than 2008 but their net profits rose more than 27% compared to 2008 to RM27 mil due to better margins from sales. This can be due to the effect of material costs which was sky high in 2008 during the commodity bubble. With commodity prices more of less stabilised, their costs management are expected to improve for their manufacturing sector.

With the current EPS of 16.2 sens, FAVCO's PER is below 5x at current market prices which includes the 4 sens tax exempt dividends expected to be approved. Conservatively we can shave off 20% of their EPS and still get about 5.6x PER after deducting the 4 sen dividend. Market volume is on the low end and prices has been stable for the past 3 months staying around RM0.80 range.

Overall I like the increasing cash levels, known brand name, low PER and acceptable dividends. But their short term borrowings are not being reduced and their cyclical business may hamper their future growth.