News

MUHIBAH secured a contract worth RM138.8m (with a provisional sum for dredging works of c.RM4.8m) from NCB Holdings (MP; TP: RM3.65). The contract involves the design and build for upgrading of Wharf 8 and associated works at Container Terminal Four (CT4). This contract is expected to be completed in 24 months.

Comments

We are POSITIVE on MUHIBAH’s job flows. Including this contract, MUHIBAH has secured approximately RM384.7m YTD, making up 48.1% of our FY15 new contracts assumption for infra division. We believe MUHIBAH is on track to meet our FY15E new contracts assumption of RM800.0m, underpinned by the group’s tenderbook of RM4.0b. We expect the group to secure some O&G-related jobs in the near-medium term to meet our full-year new jobs assumption.

Assuming 5% PBT margin, these contracts will add RM2.6m (2.9% of FY16E earnings) per annum until 2017.

Outlook

Sizeable orderbook provides earnings visibility. We estimate that MUHIBAH’s outstanding orderbook currently stands at about RM2.0b with RM1.0b 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 this 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 a civil contractor that focuses on infrastructure projects and 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