4th Sep 2013
FAVELLE Favco Bhd, a 61.78% owned unit of Muhibbah Engineering Bhd, began manufacturing cranes in China last year and is optimistic about its operations there, despite concerns that the country is facing a credit crunch.
The company's deputing managing director and CEO Mac Chung Hui tells The Edge that he is positive the company can secure plenty of work in mainland China.
"What we read in the papers is a little bit different from what we see on our side … nevertheless, we are monitoring the situation closely," says the 35-year-old.
A credit squeeze in China has raised fears about a slowdown in the world's second-largest economy, given its dependence on debts to finance massive projects and to fuel growth.
Favelle Favco started operations in China in February last year and delivered its first crane in 4Q2012. It is looking to deliver up to 15 tower cranes a year from its operations in China, which would add up to RM100 million a year, depending on the size of the crane ordered.
"The Chinese market is huge and Favelle Favco can cater for its demand for large cranes. At the moment, we are finding out about the suppliers and costs. A lot of resources are being pumped into what is going on in China, and a lot of benefits could come out of it," says Mac, adding that the challenging part about China is pricing.
Apart from home and the republic, Favelle Favco has crane-manufacturing plants in Australia, Denmark and the US.
The group supplies up to 70 large cranes a year, which contributes up to RM300 million to revenue. "Of course, the crane market is huge. That is why we are focusing on our niche market of huge tower cranes, as that is where we are strong," says Mac.
According to him, the group builds about 100 cranes a year and has an order book of about RM800 million.
Mac says 90% of its order book comprises the supply of cranes to the oil and gas industry, which is the main contributor to the group's revenue. "We fight for every job and see ourselves being busy continuously this year and in 2014. I expect our order book to keep growing in the next six months, driven by our wide presence and an increase in oil and gas investments."
The sustainability of revenue would not be a concern as the company's supply chain and raw material prices seem stable, Mac adds.
Favelle Favco recorded a 44% increase in revenue to RM697 million in FY2012 ended Dec 31, from RM482 million a year before. Net profit rose 29% to RM61 million.
Rising crane sales resulted in an improvement in not only earnings, but also margins and operational efficiency. On the other hand, the construction division slowed down, says Mac.
Favelle Favco's share price has more than doubled in the last three months, surging from RM1.60 in early April to a record high of RM3.35 on July 5.
Based on last year's earnings per share of 33.64 sen, the stock is trading at a price-earnings ratio of about 10 times.
[Source]
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