Period  1Q14

Actual vs. Expectations Muhibbah’s 1Q14 net profit of RM20.2m came in broadly inline with our expectation but below consensus estimates, accounting for 21% and 19% of the full-year estimates, respectively.

Dividends  As expected, no dividend was declared in 1Q14.

Key Results Highlights QoQ, the 1Q14 net profit declined by 18% mainly due to lower revenue (-38%) recognition. The group generated higher revenue with higher margins in 4Q13 mainly because more cranes and vessels were delivered in the quarter.

 YoY, 1Q14 revenue and net profit inched up 2% driven by cranes and concession segments’ strong profits. The group’s cranes division has secured almost RM1.0b worth of orderbook last year and we believe it has been progressing well in 1Q14 onwards. Meanwhile, 1Q14 was the strongest quarter for Muhibbah’s concession division. The segment rose 22% to RM14.2m. We believe it was boosted by higher passenger growth of its 30%-owned Cambodia airports.

Outlook  Total current order book stands at RM1.86b, comprising of: RM704m from construction, RM1.11b from crane and RM45m from the shipyard division, which will keep Muhibbah busy until 2016.

 While we see Muhibbah’s orderbook depleting soon (major orders to end this year), we understand that the group is actively pursuing new jobs domestically and overseas. In fact, yesterday, Muhibbah announced that it has received a Letter of Intent (LOI) from Samsung Engineering (M) SB for civil and building works for the Terengganu Gas Terminal Project (TGAST). The contract sum of approximately RM61.4m is scheduled to commence in 3Q14 and expected to be completed by March 2016.

 More importantly, the huge RM89b Petronas’ RAPID project has already been kicked off. For instance, major EPCC contract co-generation plant was awarded to main contractor Siemens-MMC on 12th May 2014. With Muhibbah’s track record (Malacca Regassification Plant) with Petronas andafter obtaining the latter’s licence, we believe there is high likelihood the group will win some of the packages in RAPID.

Change to Forecasts Unchanged

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) longterm earnings visibility backed by stable and growing recurring income from its concessions.

Valuation  We revised our SoP-based Target Price higher to RM3.30 (from RM3.00) after we rolled over our valuation benchmark to FY15. At RM3.30, the implied fwd-PER is 13.6x, close to +1.5 standard deviation its 5-year average fwd-PER of 10x.

Risks to Our Call Failure of meeting our new contracts assumption

 Delays in construction projects.

 Rising building material costs.

Source: Kenanga