News  Muhibbah announced that its JV company, Societe Concessionnaire De L’aeroport (SCA), the operator of Cambodian airports in Phnom Penh, Siam Reap, and Sihanoukville is expanding and refurbishing the terminal buildings of the Phnom Penh and Siem Reap airports in Cambodia. Total expansion program will cost the JV-company RM276m and is expected to be completed by end of 2015.

 To recap, Muhibbah owns 30% of the JV-company while the remaining 70% is owned by a French company, Vinci Group.  

Comments  This is not a surprise to us as the management has previously hinted that SCA will likely expand the airports due to the rapid passengers growth recorded in the past three years.

 Post-completion, we believe the airport expansion would translate into higher passenger growth, hence higher recurring income for Muhibbah in the foreseeable future. As of now, we estimate the airports to contribute about RM15 – RM25m per year via associates’ income.

 On its part, Muhibbah is likely to fork out RM83m for its 30%-stake in the JV-company, assuming a 100% equity funding, which we believe is not an issue due to its ample cash balance of RM353.5m as at end June 2013.

Outlook  We estimate Muhibbah’s current order book at RM2.24b, comprising of RM1.2b from construction, RM806m from the crane division and RM196m from the shipyard business which will keep them busy for the next two to three years.

Forecast  No change in our earnings estimates as we have already factored in the expansion programme of the airports.

Rating Maintain OUTPERFORM

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

Valuation  We maintain our Target Price of RM3.00 based on SoP valuation.

Risks to Our Call  Delays in construction projects.

 Rising building material costs

Source: Kenanga