KUALA LUMPUR: Faber Group Sdn Bhd was handed a lifeline last Thursday when it received an interim extension of its long-running concession on the day before expiration. However, the short-term extension of only six months, or until a new deal is signed whichever is first, could suggest undercurrents in the industry when it comes to the awarding of such concessions.
Faber’s wholly owned subsidiary, Faber MediServe Sdn Bhd, a hospital support services (HSS) provider, received the letter from the Public-Private Partnership Unit of the Prime Minister’s Department.
According to analysts, all three concession holders were asked to submit by Oct 3 this year their request for proposal (RFP) to the Health Ministry and Economic Planning Unit for the renewal of their concessions. Faber is one of the country’s three HSS providers, the others being Pantai Medivest Sdn Bhd and Radicare (M) Sdn Bhd. Faber’s concession was for 15 years, starting from Oct 28, 1996.
While such providers are typically given extensions about a year prior to the concession expiration date, Faber’s extension was handed to it on the very last day, and the extension was only six months at that. For a group which had such a long concession agreement at 15 years, it is surprising that such a strong track record was not rewarded with another long-term agreement.
Equally surprising is the fact that Faber is a member of UEM Group, which in turn is owned by Khazanah Nasional Bhd. Such affiliations would usually mean that the concession to provide HSS to public hospitals would be awarded on a more timely note and for a longer period.
Different analyst reports suggest different takes on the extension.
OSK Research remained optimistic. In its last research report, released on Oct 28, it indicated it was not surprised by the short-term and last-minute extension as the experience was shared by Pharmaniaga in 2009 when its concession tenure to distribute pharmaceuticals was extended by six months, before it was renewed for 10 years.
The research house said there is a good chance the group will secure the renewal of its existing concession based on its previous 15-year agreement.
RHB Research, however, wasn’t as optimistic. The research outfit downgraded Faber to “underperform”. The report said as in Pharmaniaga’s case, Faber’s negotiations with the government could drag on for up to a year and the new terms of the concession renewal are uncertain.
Besides the 79 hospitals covered by Faber in Perlis, Kedah, Penang and Perak, the group also owns concession rights to hospitals in Sabah and Sarawak.
RHB Research highlighted a potential issue regarding concessions in Sabah and Sarawak, where a new HSS provider could emerge.
It did state that Faber would have a good chance of being able to negotiate a 51% stake in joint ventures there should new parties emerge, due to the established infrastructure of Faber MediServe in those states.
Rumours have been swirling over the past year that some parties are eyeing parts of Faber’s lucrative concession, particularly in Sabah and Sarawak. The rumours gained credence as the extension of the concession dragged on.
Analysts also anticipate subcontracting jobs going to Faber as the new players might not have the expertise and experience for the project.
OSK Research in a note dated Oct 6 wrote: “East Malaysia would still contribute to Faber’s earnings although the margins may be lower.”
Faber gained five sen, or 3.03%, to close at RM1.70 yesterday, while trading volume increased by 57% to 1.74 million shares. The stock has fallen from a 12-month high of RM3.01 in November 2010.
This article appeared in The Edge Financial Daily, November 3, 2011.
Faber’s wholly owned subsidiary, Faber MediServe Sdn Bhd, a hospital support services (HSS) provider, received the letter from the Public-Private Partnership Unit of the Prime Minister’s Department.
According to analysts, all three concession holders were asked to submit by Oct 3 this year their request for proposal (RFP) to the Health Ministry and Economic Planning Unit for the renewal of their concessions. Faber is one of the country’s three HSS providers, the others being Pantai Medivest Sdn Bhd and Radicare (M) Sdn Bhd. Faber’s concession was for 15 years, starting from Oct 28, 1996.
While such providers are typically given extensions about a year prior to the concession expiration date, Faber’s extension was handed to it on the very last day, and the extension was only six months at that. For a group which had such a long concession agreement at 15 years, it is surprising that such a strong track record was not rewarded with another long-term agreement.
Equally surprising is the fact that Faber is a member of UEM Group, which in turn is owned by Khazanah Nasional Bhd. Such affiliations would usually mean that the concession to provide HSS to public hospitals would be awarded on a more timely note and for a longer period.
Different analyst reports suggest different takes on the extension.
OSK Research remained optimistic. In its last research report, released on Oct 28, it indicated it was not surprised by the short-term and last-minute extension as the experience was shared by Pharmaniaga in 2009 when its concession tenure to distribute pharmaceuticals was extended by six months, before it was renewed for 10 years.
The research house said there is a good chance the group will secure the renewal of its existing concession based on its previous 15-year agreement.
RHB Research, however, wasn’t as optimistic. The research outfit downgraded Faber to “underperform”. The report said as in Pharmaniaga’s case, Faber’s negotiations with the government could drag on for up to a year and the new terms of the concession renewal are uncertain.
Besides the 79 hospitals covered by Faber in Perlis, Kedah, Penang and Perak, the group also owns concession rights to hospitals in Sabah and Sarawak.
RHB Research highlighted a potential issue regarding concessions in Sabah and Sarawak, where a new HSS provider could emerge.
It did state that Faber would have a good chance of being able to negotiate a 51% stake in joint ventures there should new parties emerge, due to the established infrastructure of Faber MediServe in those states.
Rumours have been swirling over the past year that some parties are eyeing parts of Faber’s lucrative concession, particularly in Sabah and Sarawak. The rumours gained credence as the extension of the concession dragged on.
Analysts also anticipate subcontracting jobs going to Faber as the new players might not have the expertise and experience for the project.
OSK Research in a note dated Oct 6 wrote: “East Malaysia would still contribute to Faber’s earnings although the margins may be lower.”
Faber gained five sen, or 3.03%, to close at RM1.70 yesterday, while trading volume increased by 57% to 1.74 million shares. The stock has fallen from a 12-month high of RM3.01 in November 2010.
This article appeared in The Edge Financial Daily, November 3, 2011.
