News

Yesterday, MUHIBAH announced that they have been awarded an EPCC job in RAPID by PETRONAS amounting to RM300.0m. The EPCC job will take up to 12 months and is expected to be completed by the end of Nov- 2016.

Comments

We are positively surprised with MUHIBAH’s rapid securement of contracts as they have just secured an EPCIC job (c.RM93.0m) last Friday, and they have managed to bag another contract from PETRONAS amounting to RM300.0m.

This contract is MUHIBAH’s fourth RAPID job secured, bringing its year-to-date contracts secured up to RM1.2b (previously, RM910.0m), which exceeds our FY15E orderbook replenishment assumptions of RM800.0m by 51%.

Assuming a conservative pre-tax margin of 7%, this contract would easily contribute RM15.8m to its FY16E bottom line.

Outlook

This contract award would bring its current outstanding orderbook up from RM2.5b to RM2.8b, easily providing the group at least two years of visibility, and the consecutive job wins from RAPID led us to we believe that the group will continue to focus on bidding for more RAPID projects in 2016.

Forecast

Following the contract award, we raised our FY16E net profits by 4% to RM92.9m, as we raised our FY16 orderbook replenishment assumptions by another RM800.0m to RM1.6b with RM1.2b remaining after factoring in the previous two contract awards. However, do note that our billings recognitions are rather conservative as most of the recognition is backloaded.

Rating

Maintain OUTPERFORM

Valuation

We reiterate our OUTPERFORM call on MUHIBAH with a higher TP of RM2.79 (previously, RM2.72), post revision in our FY16E earnings for its construction division. Our SoP-based TP of RM2.79 implies FY16E PER of 12.4x (0.5x SD) which is inline with our target small-mid cap construction peers’ range of 9.0x – 14.0x, and MUHIBAH remains as our preferred pick given its strong presence in RAPID.

Risks to Our Call

Failure in meeting our new contracts assumption

Delays in construction projects

Higher-than-expected input costs

Source: Kenanga Research - 2 Dec 2015