Period  4Q14/FY14

Actual vs. Expectations  FY14 net profit of RM81.6m came in slightly below our expectation but within consensus, making up 93% and 96% of our and street’s full-year estimates, respectively. The slight negative variance was due to lower-thanexpected margin in the infrastructure division.

Dividends  Declared first and final 4.5 sen DPS (1.6%), below our expectation of 5.0 sen.

Key Results Highlights  QoQ, despite 4Q14 revenue rising by 21%, net profit was flat mainly due to higher taxation. The group’s effective tax rate has reverted back to the statutory rate of 24% from 1% previously following the absence of tax relief and under-provision of taxation in the crane division.

 YoY, 4Q14 revenue and net profit were down by 32% and 22%, respectively, due to lower infrastructure construction revenue and margins. In our view, last year was considered a higher base as most of the infra division’s projects were mainly at active/tail-end stages, resulting in higher billings and margins.

 YTD, operationally, the group’s performance improved i.e. EBIT and PBT grew by 9% and 10%, respectively, driven mainly by cranes and concession divisions following a stronger USD. However, due to the absence of tax benefits in crane division, FY14 net profit fell by 6%.

Outlook  Sizeable orderbook provides earnings visibility. We estimate MUHIBAH’s running orderbook at RM2.4b of which RM1.0b is from infrastructure, RM1.2b from cranes, and RM245m from shipyard division. This will provide the group two years’ earnings visibility.

 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.

Change to Forecasts  Unchanged, as our forecast is already considered conservative, given that we only estimate decent 5.9% and 3.6% growths in FY15 and FY16, respectively. Growth will be driven by its existing orderbook of RM2.4b and the assumption of total new contracts amounted RM1.5b in all divisions in FY15 and FY16. (refer Table 3)

Rating Maintain OUTPERFORM

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

 Reiterate our SoP-based Target Price of RM2.80, implying 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