Period  2Q13/1H13

Actual vs. Expectations  Muhibbah’s 1H13 net profit of RM40.5m came in within expectations, accounting for 51% and 47% of our and consensus estimates respectively.

Dividends  As expected, no dividend was declared in 1Q13.

Key Results Highlights  QoQ, 1Q13 net profit marginally increased by 5% to RM20.7 thanks to higher revenue from its construction division. The division’s revenue was up by 11%, driven by a RM1.2b strong orderbook with most contracts at the mid-completion stage.

 YoY, despite revenue declining by 35%, net profit went up by a healthy 21% thanks to higher margin across all divisions except for its shipyard. Higher contribution from concession division also boosted the bottom line, especially with the increased airport passenger arrivals for its Cambodia’s operation.

Outlook  Total current order book stands at RM2.2b, comprising of RM1.2b from construction, RM869m from the crane division and RM196m from the shipyard. This will keep Muhibbah busy for the next two to three years.

Change to Forecasts  No changes in our forecasts as 1H13 earnings delivered within expectations.

Rating   Maintain OUTPERFORM

 We are maintaining our OUTPERFORM rating on Muhibbah. We like Muhibbah due to its: (i) unique business that offers flexibility in construction of infrastructure, marine-related and O&G jobs, (ii) leverage on internationallyrecognized Favelle Favco’s name; and (iii) longterm visibility backed by stable and growing recurring income from its concessions.

Valuation  We reiterate our Target Price of RM3.00 based on SOP-derived valuation

Risks  Delays in construction projects.

 Rising building material costs.

Source: Kenanga