Top 3 Buys For 2006 - #2 Faber Group

Faber Group Bhd (FABER) is an investment holding company principally engaged in property development and investment, hotel operations and healthcare services. FABER is engaged in developing Taman Danau Desa, a mixed development project in KL. This project comprises condominiums, apartments and shop offices. The company also undertakes to develop a residential project known as Taman Grandview in Sandakan, Sabah. Through its wholly owned subsidiary, FM Property Management Sdn Bhd, FABER also owns and leases two office and commercial buildings, namely Faber Towers in KL and Penang Plaza in Penang. FABER also provides hospital support services including clinical waste management, cleansing, linen and laundry and bio-medical engineering maintenance services to Malaysian government hospitals via its 57% owned subsidiary, Faber Medi-Serve Sdn Bhd.

Shareholders funds returned to a positive RM198.7 million for year ended 2004, compared to a negative shareholders funds of RM434.2 million for 2003. This was mainly due to the exceptional gains from the huge restructuring exercise.

The share price was depressed for most of 2005 despite the company recording good PBT because a large number of convertible papers decided to convert to Faber shares and sell for cash. If one were to track the conversion and selling, the bulk of the scrips overhang is almost gone by now. Why did the holders sell when PBT was growing significantly? Many were waiting for Khazanah to privatise Faber Group as it was trading way below NTA and the government concessions with Malaysian hospitals looked too good to be left on its own. Rumours swirled for most of last year that Khazanah might come in with a privatisation bid of RM0.75 or even RM0.85. Well, the convertible paper holders got frustrated waiting, and the funds that bought around RM0.55 for the longest time, just gave up. Hence you find the trickling downward price for Faber over the last 6 months.

However, nothing has changed, the most important factor is the stock overhang, which is almost gone now. NTA as at the end of 2004 stood at RM0.822. The 15 year concession for the provision of hospital support services to 73 government hospitals in northern state of Peninsular Malaysia, Sabah and Sarwak is just too good to ignore.

Chairman Datuk Anwar Aji, and in particular Group MD Noorizah Abdul Hamid, are astute financial people, and have navigated very well with regards to the huge restructuring exercise. Now Faber Group is very clean, and without the burden of excessive debts and under-performing hotels.

Even their property development projects are doing well. The just launched Danau Villa in Taman Desa sold like hot cakes. This division's reputation as credible and "good" property developers have grown in the eyes of investors. Many are already eyeing their next project launches: Casa Desa (410 units high-rise to be completed in 2007, gross development value RM127 million); and Laman Limbunan (mixed development in Kepong to be launched in March this year, gross development value RM600 million).

A lot of "good value" stocks would not budge even if you shout it to everyone. There has to be trigger factors. For Faber, the timing could not be better. If investors could buy the stock below RM0.40, they should be locked up by the police and shaven bald because that's "stealing". Slightly more than a year has passed after the restructuring, Khazanah will not allow Faber to drift and trade at this price range. A privatisation is still possible but you will find it trading closer to RM1.00 if that happens, as many minority shareholders include astute fund managers who are still collecting, and they will be holding out for a very high price. Another trigger point is the "dividends" to be paid, once Faber start to declare very decent dividends (which the company can afford to do), investors will not be able to ignore the stock. The main trigger point is still the evaporation of scrips overhang from the convertible paper holders.

Current Price: RM0.38 - RM0.40
Fully Diluted number of shares: 214.146 million + RM43.156 m ICULs + RM200,000 RCPs = 457.302 million shares
Fully Diluted EPS for 2004 = RM0.95 (obviously won't be repeated as the gain was largely due to one off restructuring gains)
Net profit for 9 month period ended Sep 2005 : RM22.77 million (annualised figure RM30.36 million). Projected Fully Diluted EPS 2005: RM0.066. Projected Normal EPS (no dilution): RM0.142.

Faber's 2006 target price, without a privitisation deal, RM0.60 (a potential gain of 50% from current levels). If a privitisation deal is announced, hold on and wait for RM1.00.