1Q18 CNP of RM56.9m beats expectations, making up 42%/41% of our/consensus full-year estimates. The stellar performance was mainly due to better-than-expected performance from its associate contribution backed by exponential traffic growth in Cambodia Airport. No dividend declared, as expected. Raised FY18-19E earnings higher by 15-17%. Maintain OUTPERFORM with a higher SoP-driven Target Price of RM4.15 (from RM3.55 previously).

Above expectations. 1Q18 CNP of RM56.9m (excluding forex and derivatives loss of RM20.8m) beats expectations, making up 42%/41% of our/consensus full-year estimates. The stellar performance was mainly due to better-than-expected performance from its associate contribution backed by exponential traffic growth in Cambodia Airport. No dividend declared, as expected.

Results highlight. 1Q18 CNP grew 190%, YoY backed by: (i) growth in associate contribution (+38%) attributable to its airport concession in Cambodia, (ii) improvements in EBIT margins (+12ppt) backed by its construction division, and (iii) lower interest cost (-47%). QoQ, 1Q18 improved by 46% despite a lower revenue (-19%) mainly driven by improvement in EBIT margin (+15ppt) thanks to its construction division which we believe could be driven by variation order claims or some of its on-going projects finally picked up pace.

Company outlook. MUHIBAH’s outstanding order-book currently stands at c.RM2.0b (construction: c.RM1.5b, cranes: RM0.5b) providing at least two years of visibility. As for its associate, i.e. Cambodian Airports, traffic growth remains surprisingly robust at c.20% beating our initial growth assumptions of 10% for FY18. Going forward, we expect they would be able to maintain its traffic growth momentum.

Earnings estimates. Post results, we raised our FY18-19E core earnings higher by 15-17%, as we raised our FY18E traffic growth assumptions for its Cambodian Airports by another 15% to 25%, as we believe they could replicate the strong growth of 26% in 2017.

Maintain OUTPERFORM. Reiterate OUTPERFORM with a higher SoP-driven Target Price of RM4.15 (previously, RM3.55) which implies 12.7x FY18E PER which we deem to be reasonable if stacked against players like Malaysia Airports Holdings (AIRPORT) that trade at 35x.

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

Source: Kenanga Research - 31 May 2018