FY16 CNP of RM87.7m came in at 98%/84% of our/streets full-year estimates, which was within ours but below streets?. A 5.5 sen dividend was declared, higher than our expectation of 4.3 sen. No changes to FY17E earnings, and we introduce our FY18E CNP of RM106.2m. Maintain MARKET PERFORM, with a higher SoP-driven Target Price of RM2.54 (previously, RM2.48).

Within expectations. At 98%/84% of our/streets full-year estimates, FY16 CNP of RM87.7m after excluding forex gains (RM4.0m) and fair value adjustment gains of (RM13.6m) came in within our, but was below streets, full-year estimate. We reckon that the negative variance with streets's estimate could be due to the above-mentioned gains which we have stripped off from our CNP calculations. If these gains were not excluded, its reported profit of RM105.5m would have met street's expectation. First and final dividend of 5.5 sen declared, higher than our expectation of 4.3 sen.

Results highlight. MUHIBAH?s reported FY16 NP grew by 23%, YoY was driven by: (i) higher revenue growth (+20%), (ii) decrease in net interest expenses (-12%), (iii) decline in minority contributions (-28%), and (iv) decline in taxes (-66%) as a result of lower effective tax rate of 7%. However, FY16 Core Net Profit (CNP) declined by 11% despite a growth of 20% in revenue as it was dragged down by its crane division. Its crane division saw a 33% decline in pre-tax underpinned by the 27% decrease in revenue due to slower demand for cranes from the Oil & Gas industry. QoQ wise, 4Q16 revenue surged by 68% driven by the revenue growth in its construction and crane division of 41% and 8%, respectively. However, we believe that the main driver for its 4Q16 CNP growth of 222% comes from its concessions? contribution, which saw a 315% surge in pre-tax profit due to a seasonally stronger quarter. Positively, its net gearing has also come down to a healthier level of 0.6x (previously, 0.9x).

Outlook. Currently, MUHIBAH?s outstanding order book stands at c.RM1.7b, providing the group at least two years of visibility. To date, they have managed to secure c.RM438.1m vis-�-vis our FY17E target of RM1.5b, with another RM1.0b of replenishment to be achieved. In the medium to near-term, MUHIBAH?s focus remains unchanged on RAPID while bidding for MRT2 and other infrastructure jobs like LRT3, which would be sufficient to make up to our RM1.0b target.

FY17E earnings unchanged. Post results, we made no changes to our FY7E core earnings of RM101.5m and introduce our FY18E core earnings of RM106.2m, while keeping our FY17E order-book replenishments of RM1.5b.

MARKET PERFORM maintained. While we are still maintaining our MARKET PERFORM call on the stock, we raised our SoP-driven Target Price higher to RM2.54 (previously, RM2.48) as we ascribed a higher multiple of 12.0x to its construction division in light of the significant improvements in its net gearing to a healthy level of 0.6x. Our Target Price of RM2.54 implies FY17E PER of 12.4x. This TP is in line with our target small-and-mid caps construction peers? range of 9.0?13.0x.

Source: Kenanga Research - 01 Mar 2017