Faber Group (Oct 28, RM1.78)
Maintain buy with fair value RM2.57: Last Thursday, Faber Group announced that its wholly-owned subsidiary Faber Medi-Serve Sdn Bhd (FMS) had received a letter dated Oct 27, 2011 from the Public-Private Partnership Unit of the Prime Minister’s Department, stating that FMS will continue with the existing Hospital Support Services (HSS) concession for an interim period of six months from Oct 28 or until the signing of a new concession agreement for privatisation of HSS with the Ministry of Health, whichever is the earlier, subject to the prevailing terms and conditions of the concession. The six-month interim extension is not to be considered as binding on the government.
The announcement did not come as a surprise as we had anticipated earlier that renewal of the concession would be delayed beyond the expiry date of the existing agreement. The six-month extension closely resembles a similar experience involving Pharmaniaga with regard to the renewal of its pharmaceutical distribution concession in late 2009.
At that time, Pharmaniaga got a six-month extension, during which it was still negotiating the renewal terms and conditions. Based on Pharmaniaga’s experience, we do not rule out the possibility of the negotiations between Faber and the government stretching beyond the extension period. Nevertheless, we are of the view that this development is favourable as it indicates that there is high chance of Faber securing the renewal of its existing concession.
We reiterate our view that despite the delay, Faber will eventually get its concession renewed, going by its strong 15-year track record since the concession started on Oct 28, 1996. We maintain our “trading buy” recommendation on Faber, with an unchanged fair value of RM2.57, based on sum-of-parts valuation. This valuation is based on the assumption that the concession will be renewed for another 10 years based on the same terms and conditions in the existing concession. — OSK Research, Oct 28
This article appeared in The Edge Financial Daily, October 31, 2011.
Maintain buy with fair value RM2.57: Last Thursday, Faber Group announced that its wholly-owned subsidiary Faber Medi-Serve Sdn Bhd (FMS) had received a letter dated Oct 27, 2011 from the Public-Private Partnership Unit of the Prime Minister’s Department, stating that FMS will continue with the existing Hospital Support Services (HSS) concession for an interim period of six months from Oct 28 or until the signing of a new concession agreement for privatisation of HSS with the Ministry of Health, whichever is the earlier, subject to the prevailing terms and conditions of the concession. The six-month interim extension is not to be considered as binding on the government.
The announcement did not come as a surprise as we had anticipated earlier that renewal of the concession would be delayed beyond the expiry date of the existing agreement. The six-month extension closely resembles a similar experience involving Pharmaniaga with regard to the renewal of its pharmaceutical distribution concession in late 2009.
At that time, Pharmaniaga got a six-month extension, during which it was still negotiating the renewal terms and conditions. Based on Pharmaniaga’s experience, we do not rule out the possibility of the negotiations between Faber and the government stretching beyond the extension period. Nevertheless, we are of the view that this development is favourable as it indicates that there is high chance of Faber securing the renewal of its existing concession.
We reiterate our view that despite the delay, Faber will eventually get its concession renewed, going by its strong 15-year track record since the concession started on Oct 28, 1996. We maintain our “trading buy” recommendation on Faber, with an unchanged fair value of RM2.57, based on sum-of-parts valuation. This valuation is based on the assumption that the concession will be renewed for another 10 years based on the same terms and conditions in the existing concession. — OSK Research, Oct 28
This article appeared in The Edge Financial Daily, October 31, 2011.
