Called up favco to ask them about their business, their future projections and etc.
Found this
PE: less than 4 (@RM1.80)
Profit has been increasing year on year from 2007-2012.
Potential:
Muhibbah Engineering is the parent company and will buy the cranes from Favco
Profit margin is high due to the customization of the cranes, servicing of the cranes helped to boost revenue as wel
Malaysian plant is a full fledged plant, the risk of operation inefficiency is reduced
Oil and gas industry booming in Malaysia, have a high chance that the purchase of cranes go to Favco
Going to China with the same business model; thus looking at them maintaining their high profit margin.
Risks:
Servicing of the cranes may go to other Companies instead of favco ( can go to Ah Kong Servicing) as cranes are not proprietary in nature
Customized cranes, overhead costs high for labour/manpower. Hard to scale down the manpower costs should the market goes into a downturn
No mass production, thus cannot achieve Economies of Scale. However, this is mitigated as you will need to be ‘big enough’ to achieve EOS. A bigger company does not mean better EOS.
Recommendation:
Strong buy but with an eye out for the GE, lets buy in stages
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