News

MUHIBAH announced yesterday that it has secured a contract worth RM158.2m from Toyo Thai Malaysia Sdn. Bhd., a wholly owned subsidiary of TTCL Public Company Limited, Thailand. The job scope includes the civil, concrete and buildings for offsite areas under Package No. 5: EPCC of the steam cracker complex for Refinery and Petrochemicals Integrated Development (RAPID) Project in Pengerang, Johor.

This contract is scheduled to commence in Aug 2015 and expected to be completed by Nov 2017.

Comments

POSITIVE on the job flows. We like the fact that the group managed to secure its second RAPID-related jobs within this year. We also like to highlight that MUHIBAH has secured two contracts within a month. With the strong job flows momentum, we believe MUHIBAH will be able to meet our orderbook replenishment assumption of RM800m in FY15E.

So far YTD, MUHIBAH has secured approximately RM542.9m worth of contract, making up 67.9% of our FY15 new contracts assumption for infra division. Assuming 5% PBT margin, these contracts will add RM3.0m (3.3% of FY16E earnings) per annum until 2017.

Outlook

Sizeable orderbook provides earnings visibility. We estimate that MUHIBAH’s outstanding orderbook currently stands at about RM2.3b with RM1.2b from infrastructure, RM967.0m from cranes, and RM37.0m from shipyard division. This will provide the group two years’ earnings visibility.

To continue eyeing RAPID jobs. After successfully securing two RAPID contracts within this year and the fact that the entire RAPID project value is rather sizeable at approximately RM89.0b, we believe the group will continue to focus on this space. We understand currently MUHIBAH has about RM4.0b tenderbook of which RM1.0b is within RAPID space.

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

Source: Kenanga Research - 31 Jul 2015