News  MUHIBAH announced that the Consortium of JGC Corporation - PT. JGC Indonesia - Muhibbah has secured a Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) contract worth RM116m from Petronas. The EPCIC is for the RGT1 minimum send-out capability improvement project for the existing LNG Regasification Terminal in Sungai Udang, Melaka, Malaysia. The consortium structure has yet to be finalized.

 The contract is for 22 months, commencing in 1Q15 and is expected to be completed by 4Q16.

Comments  We are POSITIVE on MUHIBAH’s job flows. Including this contract, Muhibbah has secured two O&G jobs within two months despite the sector’s challenging environment (i.e. falling crude oil price). Assuming MUHIBAH has 60% stake in the consortium, the group’s portion works out to be RM69.6m.

 Hence, we estimate, YTD, the group has already secured approximately RM185.6m, making up 23.2% of our FY15 new contracts assumption for infra division. Assuming 5% PBT margin, based on 60% stake in the consortium, this project could add RM1.7m to the Group’s bottomline or 2.0% of our FY15E net profit.

Outlook  Sizeable orderbook provides two years’ earnings visibility. We estimate this contract has boosted Muhibbah’s outstanding orderbook to RM2.5b from RM2.4b previously. Out of RM2.4b, RM1.1b is from infrastructure construction, RM1.2b from cranes division, and RM245m from shipyard division. This will provide Muhibbah earnings visibility for the next two years.

 4Q14/FY14 quarterly earnings preview. Muhibbah is expected to announce its 4Q14 results today. We expect Muhibbah’s result to be in line with our expectation, registering net profit RM22.0-RM26.3m (+8.4%-29.6% QoQ) in 4Q14 driven by its strong orderbook of more than RM2.0b.

 RM4.0b tenderbook. Management updated that the Group’s tenderbook stands at about RM4.0b with at least RM1.0b coming from RAPID Petronas jobs. MUHIBAH has secured its maiden RAPID contract earlier this month and we believe that is the beginning of more job wins in RAPID going forward.

Forecast  Maintained as the contract value is within our estimates.

Rating Maintain OUTPERFORM

Valuation  We reaffirm our view that MUHIBAH is one of the beneficiaries of the RM89b RAPID project. We also like the fact that it still managed to secure O&G jobs despite the sector’s challenging environment following weak crude oil prices.

 Maintain our SoP-based Target Price (TP) of RM2.80. Our TP implies FY15E PER of 13.3x, in line with mid-cap construction peers’ range of 12.0-15.0x.

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

 Delays in construction projects.

 Higher-than-expected input costs. 

Source: Kenanga