Period  4Q13/FY13

Actual vs. Expectations Muhibbah’s FY13 core net profit of RM85.2m came in above our forecast but within consensus’ expectation, at 107% and 101%, respectively. The positive variance was due to the higher-than-expected orderbook burn rate of Muhibbah’s crane division.

Dividends  First and final single dividend of 4.5 sen was declared. This translates into 1.9% yield.

Key Results Highlights QoQ, 4Q13 net profit climbed 22% driven by the construction and crane division. As for construction division, most of Muhibbah’s projects are now at the tailend whereby most of them will be completed in 2014, hence higher margins. Meanwhile, as for the crane division, Favelle Favco’s revenue and net profit increased by 45% and 29%, respectively, following higher new orders in 2013, i.e. more than RM1.0b.

 YoY, After the “APH legacy” issue which Muhibbah had already made full provision for the remaining receivables in the project, Muhibbah has finally returned to the black in FY13 to report a net profit of RM85.2m from net loss position of RM93.2m in FY12.

Outlook  Total current order book stands at RM1.83b, comprising of: RM719m from construction, RM1.06b from crane and RM47m from the shipyard division. This will keep Muhibbah busy until 2016.

 Nonetheless, while we acknowledged that Muhibbah’s orderbook is depleting soon (major orders to end this year), we understand that it is actively pursuing for new jobs. With its recently-obtained Petronas license, we believe Muhibbah should be able to clinch O&G-related projects locally and globally.

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

Change to Forecasts While maintaining FY14 numbers, we introduced our FY15 net profit forecasts of RM100.1m, translating into 14% net profit growth.

Rating Maintain OUTPERFORM

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

Valuation  We are maintaining our Target Price of RM3.00 based on SoP-derived valuation.

Risks to Our Call Failure of meeting our new contracts assumption

 Delays in construction projects.

 Rising building material costs.

Source: Kenanga