News

MUHIBAH have secured three contracts with a combined value of RM60.3m namely: (i) CT7 – 14 Lanes Exit Gate, Westport, Port Klang contract from Westports Malaysia Sdn Bhd, (ii) 2-EH Acid Plant Project – Civil & Structure Works contract from BASF Petronas Chemical Sdn Bhd, and (iii) supply and deliver for Emergency Walkway Steel Material from MRT Corp Sdn Bhd.

These contracts are expected to be completed by 2016.

Comments

We are POSITIVE on MUHIBAH’s job flows. Including this contract, MUHIBAH has secured approximately RM245.9m YTD, making up 30.7% of our FY15 new contracts assumption for infra division. Assuming 5% PBT margin, these contracts would add RM2.3m to the Group’s bottomline or 2.7% of our FY15E net profit.

We like to highlight that, so far, the group has secured four O&G jobs within 1H15 despite the sector’s challenging environment (i.e. weak oil price).

We also like the fact that MUHIBAH has landed its second MRT job (the first one was in March 2013: RM202.0m noise barrier). With this track record, we believe MUHIBAH stands a good chance of winning more packages in MRT2. Timeline-wise, we expect MRT Corp to start awarding MRT2 packages by end of the year.

Outlook

Sizeable orderbook provides earnings visibility. MUHIBAH’s outstanding orderbook currently stands at RM1.95b of which we estimate RM947.0m from infrastructure, RM967.0m from cranes, and RM37.0m from shipyard division. This will provide the group two years’ earnings visibility.

RM4.0b tenderbook. We understand that its 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 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 RM89.0b RAPID project. Despite some delay concerns in the RAPID project, we believe it will not impact the group as it is mainly the civil contractors that focused on infrastructure projects; while MUHIBAH has tendered for sub-contract jobs from the main contractors that have been awarded contracts by Petronas.

We also believe that MUHIBAH is one of the potential beneficiaries for the MRT2 project thanks to its track record in MRT1.

Maintain SoP-based Target Price of RM2.88. Our TP implies FY16E PER of 13.2x, in line with our target 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 - 22 Jun 2015