Yesterday, MUHIBAH announced that they have bagged a contract for infrastructure works in Qatar from MANATEQ for a total consideration of RM438.1m. Neutral on the award as it is within our FY17 replenishment target of RM1.5b. No changes to FY16-17E earnings. Downgrade to MARKET PERFORM based on unchanged SoP-driven Target Price of RM2.48.

RM438.1m award in Middle East. Yesterday, MUHIBAH announced that they have secured a contract amounting to RM438.1m from the Economic Zones Company of Qatar (MANATEQ), for the construction of roads and infrastructure works in Um Alhoul Economic Zone (QEZ- 3) Phase 2.1 (Portion 2A, Marine Cluster), Qatar which is slated for completion in approximately 18 months from the award date which would be 2Q18.

Neutral on win. This particular award of RM438.1m would be MUHIBAH’s first score of the year. However, we are neutral on the contract win given that it is within our FY17E order book replenishment of RM1.5b. Post award, MUHIBAH’s YTD wins currently stands at RM438.1m. Assuming PBT margins of 8%, we expect the contract to contribute c.RM26.3m to its bottom line over the contract period of approximately 18 months.

Company outlook. Currently, MUHIBAH’s outstanding order book stands at c.RM2.1b, providing the group at least two years of visibility. For FY17, we believe that our order book replenishment target of RM1.5b is achievable as we believe that MUHIBAH still stands a good chance in securing contract awards from RAPID, MRT2 and other infrastructure jobs like LRT3 in 1H17. That said, we also expect MUHIBAH to register a better 4Q16 as we do not expect more provisioning from its crane division coupled with a stronger contribution from its associates in 4Q16.

Earnings estimates. Post award, we make no changes to our FY16- 17E earnings estimates.

Downgrade to MARKET PERFORM. We are downgrading MUHIBAH to MARKET PERFORM (previously, OUTPERFORM) with an unchanged SoP-driven Target Price of RM2.48.

The share price has done well with 11% run-up from the recent low of RM2.11 at 29 Nov 2016. At this juncture, we see no further catalyst to upgrade our TP, unless they are able to surpass our order book replenishment target of RM1.5b for FY17.

To recap, they only managed to secure c.RM320.0m vis-à-vis our FY16E target of RM1.0b. Our Target Price of RM2.48 implies FY17E PER of 11.5x. This TP is in line with our target small-and-mid cap construction peers’ range of 9.0–13.0x.

Source: Kenanga Research - 11 Jan 2017