Last Friday, MUHIBAH bagged two contracts from Petronas companies with total work value of RM205.0m.Neutral on the win as it is within our order-book replenishment. No changes to our FY18-19E CNP. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM4.15.

News. Last Friday, MUHIBAH announced that they have bagged two contract awards from Petronas companies with a total sum of RM205.0m. The scope of works for these two projects are as follows; (i) engineering, procurement, construction, installation & commissioning (“EPCIC”) of seawater overboard upgrading, firewater network improvement and new pressure control (PCV) installation project in Melaka, and (ii) EPCIC of Yetagun acid gas removal unit project in Myanmar, which is expected to complete by first and second quarters of 2020.

Neutral on win. We are neutral on the wins as it is still within our replenishment assumption of RM400.0m for 2018. To date, MUHIBAH has secured c.RM300.0m worth of external jobs bringing its outstanding order-book to c.RM1.5b for its construction arm. Its total outstanding order-book including its crane division is c.RM2.0b. Assuming pre-tax margins of 8%, the wins would contribute c.RM9.0m to its FY19 bottom- line.

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, we believe that traffic growth will remain robust at high teens and it remains one of its major earnings contributors. Going forward, we expect they would be able to maintain the traffic growth momentum, driven by traffic from China.

Earnings estimates. 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 trades at >20x. To recap, its associate contribution of which the bulk is from Cambodia airport made up c.60% of its 9M18 pre-tax profit 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 - 24 Dec 2018