1H17 CNP of RM54.3m came in within expectations, making up 54% and 46% of our and streets’ full-year estimates, respectively. No dividends proposed during the quarter, as expected. No changes to FY17-18E core earnings. Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of  RM2.94.

In line. 1H17 CNP of RM54.3m came in within expectations, making up 54% and 46% of our and streets’ full-year estimates, respectively. No dividends proposed during the quarter, as expected.

Results highlight. YoY, MUHIBAH managed to record a flattish CNP of RM54.3m despite a sharp decline of 20% in revenue, mainly thanks to its associate contribution which saw a sharp increase of 133%. We believe the sharp increase in associate contribution is mainly driven by the strong performance from airport concession in Cambodia due to better passenger arrival and cargo traffic.

On QoQ basis, its 2Q17 CNP grew 77% on the back of revenue growth of 94% driven by its construction and crane division. That said, its financing cost also came down by 40% due to major improvement in net gearing, which currently stands at 0.4x as compared to 0.7x in 1Q17.

Company outlook. MUHIBAH’s outstanding order-book currently stands at c.RM1.9b 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 - 30 Aug 2017