News    Yesterday, Muhibbah announced that it has been awarded a License by Petronas as Approved Supplier for the Category of “OFFSHORE FACILITIES CONSTMAJOR ONSHORE FABRICATION” (“License”).

Specifically, the License qualifies Muhibbah to tender and participate for upcoming Offshore Facilities Construction and Major Onshore Fabrication Works for PETRONAS and other oil major operators in Malaysia.

Comments    We are Positive with the news as we understand that with the Petronas license in its hand, we believe Muhibbah’s direction to participate more in O&G industry is on track. 

Recall, Muhibbah has track records with Petronas where it is currently completing the RM1.1b LNG Regasification Project in Melaka. Going forward, we believe it will continue to clinch more Petronas jobs possibly on the south side (i.e. RAPID Johor). Interestingly, Muhibbah is able to tender on its own and does not have to tie-up with other O&G player anymore due to the license.

We gather that works for the RM60b RAPID Pengerang project would be split into 20 packages. Pre-qualification tenders have commenced where Muhibbah is qualified to bid for at least three packages. Each package is easily worth RM600m–RM1.0b. With the Petronas license, it strengthens further Muhibbah’s chance to secure at least one package judging from its good track record with Petronas.

Outlook   Muhibbah’s current order book stands at RM2.24b, out of which, 45% is from O&G sector. We believe with the Petronas license, Muhibbah’s O&G orderbook composition would increase further. 

Forecast   No change in our earnings estimates. 

Rating   Maintain OUTPERFORM

We reiterate our OUTPERFORM rating on Muhibbah as we believe it is one of the construction stocks that could ride on both robust O&G and construction sectors outlook given its track records as marine and O&G and civil contractor.

Valuation    We raised our Target Price to RM1.90 from RM1.63 based on SoP valuation after we reflect Favelle’s increased current market cap recently. 

Risks    Delays in construction projects.

Rising building material costs.

Source: Kenanga