News

Yesterday, MUHIBAH announced that they are looking to undertake a private placement of up to 10% of its issued and paid-up share capital to raise up to c.RM111.9m for repayment of debt and working capital purposes.

Comments

We are quite surprised with the announcement, as we did not expect any cash call exercise from MUHIBAH.

Despite the dilutive effects of the placement on its FY16-17 EPS by 7%-8%, we are slightly positive as the proposed placement would help MUHIBAH to strengthen their balance sheet by reducing their net gearing of 0.85x (inclusive of bill payments) as of 4Q15 to 0.60x-0.63x levels.

Furthermore, we believe the better net gearing coupled with an enlarged share capital will further improve its rating with Petronas and increase their chances in winning more RAPID jobs.

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.

Rating

Maintain OUTPERFORM

Valuation

We reiterate our OUTPERFORM call on MUHIBAH with an unchanged TP of RM2.79 as the placement is expected to be completed by year end, post placement our TP would be adjusted downwards to RM2.54.

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, for its diversified earnings profile, especially its Cambodian Airport concession which provide a steady stream of income coupled with their strong presence in RAPID. To recap, they are one of the few contractors that bagged the most contracts from RAPID amounting to RM1.5b as compared to big-boys like WCT which only bagged RM582.3m worth of RAPID projects in 2015.

Risks to Our Call

Failure in meeting our new contracts assumption

Delays in construction projects

Higher-than-expected input costs

Source: Kenanga Research - 29 Apr 2016