Period  3Q13/9MFY13

Actual vs. Expectations Muhibbah’s 9MFY13 net profit of RM60.6m came in within our expectation but below consensus’, accounting for 76% and 68% of ours and consensus estimates respectively.

Dividends  None as expected.

Key Results Highlights QoQ, in spite of higher revenue in 3Q13, net profit fell marginally by 3% to RM20.1m due to lower construction division’s margins.

 YoY, while 3Q13 revenue declined by 18% due to the high-base effects following most of its major projects completed in the previous year, net profit increased 5% thanks to the shipyard division’s profit contribution (+208%). We reckon this could be from the high margin anchor handling tug supply job that Muhibbah secured earlier this year.

 YTD, the Group’s net profit was up by 16% thanks to strong performance from its shipyards and concessions businesses which more than compensated for weaker performances in its construction business.

Outlook  Total current order book stands at RM2.13b, comprising of: RM1.0b from construction, RM1.04b from crane and RM87m from the shipyard division. This will last them for the next until 2016.

 We understand that Muhibbah is actively pursuing for new jobs to top-up its depleting orderbook (major orders to end next year). With its recently-obtained Petronas license, we believe Muhibbah should be able to clinch Petronas projects, as well as, overseas jobs given that the license has been recognized globally.

 We understand Muhibbah is eyeing out for (i) few jobs in RAPID Pengerang, (ii) marine-related works in the country, (iii) overseas offshore fabrication jobs.

Change to Forecasts No changes as 9M13 earnings delivered within expectations.

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

Valuation  We reiterate our Target Price of RM3.00 based on SOPderived valuation

Risks  Absence of new orders

 Delays in construction projects.

 Rising building material costs.

Source: Kenanga