News

Yesterday, MUHIBAH and its joint-venture partner VCGP (30:70) were awarded a contract worth c.USD23.0m or RM88.0m to design and construct a new domestic terminal for the Phnom Penh Airport in Cambodia. The construction works for the airport will commence immediately and completion is expected by 4Q17 or approximately in 18-19 months’ time.

Comments

While the effective contract sum of RM26.4m (30%) is deemed to be smallish for MUHIBAH, we are positive on the contract award as the construction for a new domestic terminal of the Phnom Penh Airport in Cambodia indicates that there would be more growth potential for its investment in Cambodian Airport which charted 13% growth in passenger movements last year and contributes c.30% to its bottom-line.

Assuming a pre-tax margin of 12%, this particular job is expected to contribute c.RM2.5m our FY16E and 17E net profit of RM92.9m and RM104.9m, respectively.

Outlook

As of Feb-16, MUHIBAH’s outstanding orderbook stands at c.RM2.5b, easily providing the group at least two years of visibility. Hence, the prospect for MUHIBAH is bright and they will continue to focus in RAPID while bidding for MRT2 and other infrastructure jobs.

Forecast

No change to our FY16-17E earnings as the particular win is within our remaining orderbook assumption of RM1.0b.

Rating

Maintain OUTPERFORM

Valuation

We reiterate our OUTPERFORM call on MUHIBAH with an unchanged TP of RM2.79. Our SoP-based TP of RM2.79 implies FY16E PER of 14.1x which is at a slight premium compared to our target small-mid cap construction peers’ range of 9.0x–13.0x. However, we like MUHIBAH for its diversified earnings profile, especially its Cambodian Airport concession coupled with their 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 - 14 Apr 2016