9M17 CNP of RM83.8m came in above our expectation (due to better-than-expected associate contribution) but within consensus, accounting for 83% and 70% of full-year estimates, respectively. No dividends declared as expected. Raised FY17/18E CNP by 26%/28%. Upgrade to OUTPERFORM with a higher SoP-driven Target Price of RM3.55 (previously, MP; TP: RM2.94).

Above our, within consensus, expectation. 9M17 CNP of RM83.8m came in above our expectation (due to better-than-expected associate contribution) but within consensus expectation, accounting for 83% and 70% of full-year estimates, respectively. No dividends declared as expected.

Results highlight. 9M17 CNP registered decent growth of 35% YoY despite weaker revenue which declined by 15%. This is due to: (i) strong improvement in associate contributions (+111%) mainly driven by strong passenger traffic growth in Cambodia (+26%), (ii) lower effective interest cost (-31%) due to lower net gearing which came off to 0.3x from 0.9x, and (iii) lower effective tax rate of 10% (-1ppt). QoQ, its 3Q17 CNP came off by 15% due to the decline in associate contribution (-56%) and also higher minority interest contribution (+25%).

Company outlook. MUHIBAH’s outstanding order-book currently stands at c.RM1.9b (construction: RM1.4b, cranes: RM0.5b) providing at least two years of visibility. As for its associate i.e. Cambodian Airports, traffic growth remains robust at 26%, YoY as of 9M17 and we believe they are able to maintain the growth momentum into 4Q17.

Earnings estimates. Post results, we upgrade our FY17/18E CNP by 26%/28% after we factor in a higher associate contribution as we revised our passenger traffic estimates higher by another 15%.

Upgrade to OUTPERFORM. In light of its strong performance driven by its Cambodian Airport associate, we are upgrading it to OUTPERFORM with a higher SoP-driven Target Price of RM3.55 (previously, MP; TP: RM2.94) following the upgrade in earnings estimates for its Cambodian concession. Our TP of RM3.55 implies 12.5x FY18E PER which is in line with our small-mid-cap peers’ range of 9.0x-13.0x. However, we believe the premium is justified due to the strong contribution from its concession assets.

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 Nov 2017