Favelle Favco’s contract winning streak reaffirms sector recovery

KUCHING: Favelle Favco Bhd’s (Favelle Favco) latest contract winning streak has reaffirmed analysts view that the oil and gas (O&G) sector is starting to recover.

Of note, Favelle Favco and its subsidiaries recently announced slew of purchase orders for offshore cranes, tower cranes, compressor system, solar system and upgrading amounting to an approximate RM121.1 million.

The expected date of delivery ranges from the third quarter of FY21 (3QFY21) to 3QFY22.

According to a report by the research team at MIDF Amanah Investment Bank Bhd (MIDF Research), with these latest purchase orders, Favelle Favco’s order book estimation has risen to RM637 million.

It noted that Favelle Favco reported an order book of RM516 million as of May 3, 2021 which had given the group a baseline until 1QFY22.

It said, the newly acquired contracts are expected to contribute positively to the earnings and net assets of Favelle Favco for FY21 and beyond.

“We reiterate our positive view on Favelle Favco with its latest purchase order, and continue to see the contract streak as a sign of recovery for the O&G sector.

“At least five out of the eight contracts are for offshore activities, including the compressor system and upgrade work undertaken by Favelle Favco’s subsidiary Exact Automation.

“We concur with Favelle Favco’s positive stance on recovery from the impact of Covid-19 pandemic with the vaccine roll-out in the countries,” MIDF Research opined.

It noted that the group will continue to be vigilant of the economic recovery, especially in the crane sector.

“Brent crude oil had been elevated in 1HFY21 with the gradual curb of the pandemic and the increasing demand for the commodity, in addition to the recent OPEC+ decision to increase oil supply to 400,000bpd in the next few months.

“These would give Favelle Favco’s clients enough assurance to start offshore projects again. Moreover, Favelle Favco has the ability to deploy its cash flow in various ways, including investment in its rental fleet and new crane models, as well as adding new external ventures into its portfolio.

“As such, we restate that Favelle Favco will be able to sustain its operations and will definitely occupied with more orders well into FY22 as demand for oil recovers,” it said.

It also believe that demand for oil among consumers and industrials could gradually restore in the short term, hence increasing the need for offshore and shipyard cranes to return to the market.

“Furthermore, Favelle Favco’s Exact Group currently holds over 20 live maintenance contracts with most oil majors in Malaysia, supplies hybrid solar and wind turbine for offshore facilities, and provides various automated analytical and maintenance systems including pipeline monitoring and plant intelligence solutions.

“This division is not only on par with Industry 4.0, but also contributes to the call for energy transition in the oil and gas sector,” it added.