1H18 CNP of RM87.9m is deemed inline, making up 56%/58% of our/consensus full-year estimates, as we expect subsequent quarters to track its performance in 2Q18. No dividend declared, as expected. No changes to our FY18-19E CNP. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM4.15.

Inline. 1H18 CNP of RM87.9m (excluding forex and derivatives loss of RM18.7m), made up 56%/58% of our/consensus full-year estimates. However, we deem it as broadly in-line with our full-year estimate as we expect subsequent quarters to track its performance n 2Q18. No dividend declared, as expected.

Results highlights. YoY, 1H18 CNP grew 62%, which was backed by (i) growth in associate contribution (+8%) attributable to its airport concession in Cambodia, (ii) improvements in EBIT margins (+6ppt) backed by its construction division, (iii) lower interest cost (-24%), and (iv) lower effective tax rate of 8% (-5ppt). QoQ, 2Q18 revenue grew 25%, but its CNP came off by 46% due to lower contribution from its associate (-23%) and EBIT margin compression to 5% (-12ppt) dragged down by both its construction and crane divisions.

Company outlook. MUHIBAH’s outstanding order-book currently stands at c.RM2.0b (construction: c.RM1.6b, cranes: RM0.4b) providing at least two years of visibility. As for its associate, i.e. Cambodian Airports, we believe that traffic growth will remain robust at high teens. Going forward, we expect they would be able to maintain its traffic growth momentum, driven by traffic from China.

Earnings estimates. Post results, no changes to our FY18-19E earnings.

Maintain OUTPERFORM. Reiterate OUTPERFORM with an unchanged SoP-driven Target Price of RM4.15, which implies 12.7x FY18E PER which we deem to be reasonable if stacked against players like Malaysia Airports Holdings (AIRPORT) that trade at 38x. To recap, its associate contribution of which the bulk is from Cambodia airport made up c.72% of its 1H18 pre-tax profits, which is the major earnings driver for MUHIBAH.

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 - 03 Sep 2018