Journey to Wealth
Muhibbah Engineering - APH is under liquidation
News Muhibbah announced that Asia Petroleum Hub Sdn Bhd (APH) had been wound up on 19 October 2012 and the Court had appointed an Official Receiver as a provisional liquidator of APH.
Comments We are neutral on the news as we are unsure of the amount to be recovered from the liquidation process. However, the move above is expected to address the creditors' interest in the next 21 days, which include the debt to share swap exercise. The management sees this news as positive as it will speed up the decision-making to solve the overhang issue in APH.
As at 1H12, the amount due from APH amounted up to RM400m for the work done duly certified, of which Muhibbah had already made a RM160m provision in the past years. Going forward, the recoverable amount is still too early to be estimated. Nonetheless, we think that the liquidation will somewhat be speeded up.
To recap, Muhibbah had previously proposed the debt to equity swap as part of the settlement of the outstanding amount. We do not discount that the liquidator will revisit this debt to equity swap settlement with the creditors.
Outlook Notwithstanding, the company's going concern remains not in doubt and its long term prospect remains intact underpinned by its ongoing projects, which is worth about RM2.2b (order book) lasting up to the next 3 years.
Forecast We are maintaining our numbers at this juncture pending further development on this news i.e. the possible write-off of the remaining outstanding amount due from APH.
Rating Maintain MARKET PERFORM
There is a slight positive on this news but the uncertainty on the recoverable amount remains an issue. We expect the share price to react positively on the conclusion of the APH liquidation outcome later.
Valuation We have increased our Target Price on Muhibbah to RM0.925 from 0.83 as we are lowering the rate of the write-off on the RM395m receivables due from APH to 50% from 60% previously.
Risks Delays in project execution and a spike in building material prices.
Source: Kenanga
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