KUALA LUMPUR (June 17): MIDF Research has slashed its earnings forecast for Favelle Favco Bhd on expectation of lower sales for cranes amid the outbreak of the Covid-19 pandemic around the world.

“We are reducing our FY20-21F earnings estimate by -19.5% and -18.4% as we incorporate lower sales revenue for cranes going forward due to unfavourable operating environment as a result of the spread of Covid-19 which [has] been disrupting businesses worldwide,” said MIDF Research in a note today.

The research house now anticipates Favelle Favco to generate an annual profit of RM75.9 million for the financial year ending Dec 31, 2020 (FY20) and RM81.8 million for FY21. This translates into an earnings per share of 34.3 sen for FY20 and 37.5 sen for FY21.

The downward revision for its earnings projections was after Favelle Favco reported a weaker-than-expected performance in the first quarter ended March 31, 2020 (1QFY20) due to sluggish sales for its cranes.

MIDF Research said Favelle Favco posted a normalised net profit of RM15.4 million for 1QFY20, coming in at 16.2% of MIDF Research full-year earnings estimates.

Yesterday, the company reported a 19.4% drop in net profit to RM11.91 million for 1QFY20, compared to RM14.78 million a year ago on lower sales, as revenue for 1QFY20 came in at RM144.63 million, down 7.3% year-on-year compared to RM156 million for 1QFY19.

As at June 17, 2020, the group’s outstanding orderbook stood at RM521 million. Of the total orderbook, 60% is from oil and gas cranes for the offshore oil and gas exploration and production activities. While 26% is from the shipyard, construction and wind turbine industry and 14% is from intelligent automation.

Post earnings revision, MIDF Research has a “buy” recommendation for Favelle Favco, with a lower target price of RM3, from RM3.41 previously.

“We believe in Favelle Favco’s stable orderbook mix with infrastructure-based projects; net cash position and consistent dividend payout translating into an attractive FY21F dividend yield of 6.4%,” it said.

On dividend payment, the research house expects the company to deliver 13.7 sen for FY20 and 15.4 sen for FY21.

Favelle Favco shares fell as much as 0.83% or two sen to RM2.38 shortly after opening bell today.

At 9.50am, the counter traded at RM2.38 after some 2,000 shares exchanged hands. The stock has recovered 38% from its recent low of RM1.73 from March 23.