MUHIBAH?s 1Q17 CNP of RM19.6m makes up 19%/17% of our and streets? full-year estimates. We deem the results to be broadly in-line as we are expecting the billings progress for its on-going projects to pick up pace by 2H17. No dividend was declared as expected. No changes to FY17-18E core earnings. Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM2.94.

Broadly inline. 1Q17 CNP of RM19.6m makes up 19%/17% of our and streets? full-year estimates. We derive our 1Q17 by adjusting for its forex loss (-RM3.9m) and derivatives gain (RM13.6m). However, we deem that its results to be broadly in-line as we are expecting the billings progress for its on-going projects to pick up pace by 2H17. No dividend was declared as expected.

Results highlight. Its 1Q17 CNP was down by 39%, YoY, underpinned by the sharp decline in revenue (-50%), as all of its divisions experienced steep decline in revenue. The steep decline in revenue is due to timing differences as most of their on-going construction projects are still at preliminary stage, while the slump in its crane division?s revenue is mainly due to weaker sales on account of the existing slow environment in the Oil & Gas sector. Positively, its associate saw a significant growth of 82% mainly driven by its airport concession in Cambodia, which experienced 18% growth in passenger traffic. QoQ, the 23% decline in 1Q17 CNP is mainly due to similar reasons above.

Company outlook. MUHIBAH?s outstanding order-book currently stands at c.RM2.1b providing them at least two years of visibility. For FY17, we believe that our order-book replenishment target of RM1.5b is achievable as they have already achieved c.50% of our target. Furthermore, we believe that MUHIBAH still stands a good chance in securing contract awards from RAPID, and other infrastructure jobs from Middle East and LRT3. That said, we are also expecting its construction revenue to pick up in 2H17 as most of its on-going projects move into advanced stages.

Earnings estimates. No changes to our FY17-18E core earnings.

Maintain MARKET PERFORM. We are keeping our MARKET PERFORM call with an unchanged SoP-driven Target Price of RM2.94. Our TP of RM2.94 implies 14.3x FY18E PER which is slightly higher compared to our small-mid-cap peers range of 9.0x- 13.0x.

Risks include: (i) failure to meet order-book replenishment target, (ii) delays in construction progress, and (iii) sharp spike in raw material costs.

Source: Kenanga Research - 01 Jun 2017