Period

3Q15/9M15

Actual vs. Expectations

MUHIBAH registered 9M15 net profit of RM65.5m, which is within ours but below streets’ full-year estimates with a fulfilment rate of 75% and 68%, respectively. We believe that the consensus could be slightly too aggressive with their assumptions on the construction margins.

On a separate announcement, MUHIBAH announced that they have been awarded a c.RM93.0m contract by Ophir Production Sdn. Bhd. which lasts for the next 14 months. To date, MUHIBAH has secured c.RM910.0m worth of jobs, exceeding our FY15 replenishment assumption of RM800.0m.

Dividends

No dividend declared, as expected.

Key Results Highlights

YoY, MUHIBAH still managed to grow its 9M15 net profit by 7% to RM65.5m despite a slide in revenue (-6%), mainly driven by greatly improved performance from its associates (Cambodian airports), which saw contribution increasing by 35% to RM42.4m as a result of better passengers traffic and the strengthening in USD. That said, its EBIT margin also improved by 2ppt to 8% thanks to better operational efficiencies from its crane division.

QoQ, 3Q15 net profit was up by 19% to RM23.0m due to similar reasons above where its associates’ contribution increased by 26% to RM14.4m.

Outlook

Currently, its outstanding orderbook stands at RM2.5b providing the group at least two years of visibility, and we believe that the group will continue to focus on bidding for more RAPID projects of which they have secured three packages this years.

Change to Forecasts

No changes to our FY15-16E net profits, as the orderbook replenishment of c.RM93.0m is still within our FY16 replenishment assumption of RM800.0m.

Rating

Maintain OUTPERFORM

Valuation

Maintain OUTPERFORM on MUHIBAH with an unchanged TP of RM2.72. Our SoP-based TP of RM2.72 implies FY16E PER of 12.5x (0.5x SD) which is inline with our target small-mid cap construction peers’ range of 9.0x – 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 - 30 Nov 2015