News  Yesterday, Bintulu Port announced that it has issued the Letter of Acceptance to Muhibbah for a contract worth RM157m.

 The scope of works includes design, construction and completion of the proposed Samalaju Port Development project at Samalaju, Bintulu, Sarawak (Phase 1 comprises conveyor system facilities package). The duration of the project is 22 months.

Comments  Positive on Muhibbah’s contract flows. Including this contract, Muhibbah’s YTD job wins amounted to RM378m or 54% of our FY14 new jobs assumption of RM700m. We reiterate our view that the remaining RM300-RM500m

new jobs would be secured by the group before end-FY14, likely from the O&G sector i.e. Petronas-related projects such as RAPID Pengerang.

 Assuming PBT margin of 7%, this project will contribute about RM4.1m to Muhibbah’s bottomline per annum until FY16.

Outlook  Sizeable orderbook provides 2 years’ earnings visibility. Including this contract, we estimated Muhibbah’s outstanding order book to be RM1.93b, comprising RM875m from construction, RM1.02b from crane and RM38m from the shipyard division. This will keep Muhibbah busy until 2016.

 To benefit from RAPID. As the huge Petronas’ RAPID project (worth RM89b) has already kicked off with basic infrastructure jobs (i.e. site preparation works, power plant, access roads and off-loading facilities jetty) already awarded to various contractors of late (since June 2014), we anticipate Petronas to continue expediting the awards of other packages in the near-term given that the whole RAPID project had been delayed. This should benefit Muhibbah as bulk of its tenderbook is from RAPID-related projects. We believe there is a high likelihood that the group will win some of the packages in RAPID given the group’s excellent track record with Petronas (Malacca regassification terminal).

Forecast  Maintained as the contract value is well within our FY14 new jobs assumptions.

Rating Maintain OUTPERFORM

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

Valuation  Maintain our SoP-based Target Price of RM3.55. This implies fwd-PER of 14.6x FY15 EPS, which is still within mid-cap sized construction peers’ historical PER range of 12-15x.

Risks to Our Call Failure of meeting our new contracts assumption.

 Delays in construction projects.

 Rising building material costs.

Source: Kenanga