Period

1Q15

Actual vs. Expectations

1Q15 net profit of RM23.3m came in within expectations, making up 27% and 24% of our and street’s full-year estimates, respectively.

YTD, the group has secured RM185.6m worth of new contracts, accounting for 23% of our new contracts assumption. We believe our orderbook replenishment assumption of RM800m is rather achievable on the back of its tenderbook of RM4.0b.

Dividends

None as expected.

Key Results Highlights

QoQ, despite 1Q15 revenue decline of 20% due to lower billings in the shipyard and infrastructure division, net profit increased by 15% mainly driven by higher margins in infrastructure segment that increased by 3ppts to 5% due to high-margin projects in the orderbook.

YoY, while 1Q15 revenue was down by 8% (similar reason as above), net profit rose 16% thanks to stronger performance in the crane division. The segment’s PBT jumped 75%, boosted by higher margin (+5ppts) achieved following improvement in operational efficiencies.

Outlook

Sizeable orderbook provides earnings visibility. MUHIBAH’s outstanding orderbook currently stands at RM2.0b of which we estimate RM1.0b from infrastructure, RM900m from cranes, and RM100m from shipyard division. This will provide the group two years’ earnings visibility.

RM4.0b tenderbook. We understand that Muhibbah’s tenderbook stands at about RM4.0b with at least RM1.0b in RAPID Petronas jobs. MUHIBAH has secured its maiden RAPID contract earlier this year and we believe that this is the beginning of more job wins in RAPID going forward.

Change to Forecasts

Unchanged

Rating

Maintain OUTPERFORM

Valuation

We reaffirm our view that Muhibbah is one of the beneficiaries of the RM89.0b RAPID project. Despite some delay concerns in the RAPID project, we believe it will not impact the group as it is the civil contractors which mainly focus on infrastructure projects. It also tendered for sub-contract jobs from the main contractors that had already been awarded contracts by Petronas.

Tweaked higher our SoP-based Target Price to RM2.88 from RM2.80 previously after rolling over our valuation basis to FY16. Our TP implies FY16E PER of 13.2x, in line with small-mid cap construction peers’ range of 10.0- 14.0x.

Risks to Our Call

Failure in meeting our new contracts assumption

Delays in construction projects

Higher-than-expected input costs

Source: Kenanga Research - 1 Jun 2015