The impact of the Covid-19 pandemic resurgence in 1HFY21 had been detrimental for oil and gas service companies such as Favelle Favco as projects are delayed and higher operating cost were reported due to border restrictions.
KUCHING (Oct 27): Favelle Favco Bhd’s (Favelle) earnings are expected to improve in the financial year 2021 (FY21) and FY22 from its latest contract wins amid the current crude oil price rally, analysts observed.
In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) noted that Favelle’s subsidiaries, Favelle Favco Cranes Pte Ltd, Favelle Favco Cranes (M) Sdn Bhd, Favelle Favco Cranes Pty Ltd, and Exact Automation Sdn Bhd had received an additional four purchase orders for offshore cranes, tower cranes, and control and data acquisition system.
The approximate combined value of the orders secured is RM37.1 million. The expected date of delivery ranges from the first quarter of FY22 (1QFY22) to 4QFY22.
As of September 16, 2021, the research team pointed out that Favelle reported an outstanding orderbook of RM584 million from its global oil and gas, shipyard, construction, wind turbine industries and intelligent automation.
With the addition purchase order, its latest orderbook stands at an approximate of RM621 million.
These new contracts are expected to contribute positively to the group’s earnings for the financial year ending December 31, 2021 and beyond.
“The impact of the Covid-19 pandemic resurgence in the first half of FY21 (1HFY21) had been detrimental for oil and gas service companies as projects are delayed and higher operating cost were reported due to border restrictions.
“Consequently, earnings for many had barely reached our expectations for 1HFY21 and Favelle was no exception.
“Nevertheless, in 1HFY21, Favelle had reported a significant increase in earnings and revenue of 30 per cent y-o-y to RM25.4 million and 14 per cent y-o-y to RM275.2 million respectively.
“As such, we continue to view FFB positively with its latest purchase order, and continue to see the new contract wins as further improvement for FFB’s financial performance.
“Moreover, Brent crude oil had been rallying past US$80 per barrel since early October 2021 on tight global supply and increasing demand recovery. OPEC+ continues to provide 400,000bpd output until the end of the year, and the uncertainty of an increase in supply output by the oil cartel remains.
“Intrinsically, we opine that FFB will be a beneficiary of the current crude oil rally with the expectations of more offshore exploration and drilling operations,” MIDF Research opined.
It added that while the high crude oil and natural gas prices had skyrocketed since its previous low of US$65 per barrel in August 2021, the uncertain impact from the pandemic in the near term continues to be a major risk factor.
“Nevertheless, we believe that the outlook for the sector is positive in the near term with Favelle set to be a beneficiary,” it added.
“We opine that strong demand for crude oil amid the tightening global supply will call for more offshore exploration and drilling operations, hence increase demand for offshore and shipyard cranes to be utilised.
“As such, we continue to view in Favelle positively on the basis of contract winning streaks and a robust orderbook well into FY22, well diverse business segments, and consistent dividend payout.”