MUHIBAH has received contract awards worth RM165.0m from Turnpike Synergy Sdn Bhd for the construction of noise barriers on SUKE and DASH highway. Neutral on the win as the award is within our order-book replenishment of RM550.0m for FY19. No changes to our FY18-19E earnings. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM3.20.

News. Yesterday, MUHIBAH received two contract awards cumulatively worth RM165.0m from Turnpike Synergy Sdn Bhd (wholly- owned subsidiary of Projek Lintasan Kota Holdings Sdn Bhd) for the construction of noise barriers on SUKE and DASH highways. Based on our understanding, the construction of noise barriers is for the entire alignment of SUKE and DASH highways. Construction works would commence by the end of Jan 2019 and expected to complete in 1Q21.

First win this year. This marks its first contract win for the year, and we are neutral as the contract value of RM165.0m is in line with our order-book replenishment assumptions of RM550.0m for FY19. Assuming a conservative pre-tax margin of 10%, the noise barrier contracts would contribute c.RM5.7m to its bottom-line per annum.

Outlook. The contracts award bring MUHIBAH’s outstanding order- book to 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 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 traffic growth momentum, driven by traffic from China. As for MRT2 and LRT3, we expect some review in costs but would be insignificant to MUHIBAH as its exposure to them is only at 10% of its outstanding order-book.

Earnings estimates. No change to our FY18-19E earnings as the contracts award is within our order-book replenishment target.

Maintain OUTPERFORM. We reiterate OUTPERFORM call with an unchanged SoP-driven Target Price of RM3.20, which implies 9.1x FY19E PER (-0.5SD of its 4-year average levels) as we believe that MUHIBAH has minimal risk in the local construction scene compared to other contractors. Furthermore, our valuation is reasonable when stacked against players like Malaysia Airports Holdings (AIRPORT) that is traded at >20x. To recap, its associate contribution of which the bulk is from its Cambodia airport made up c.60% of its 9M18 pre-tax profit is the major earnings driver for MUHIBAH.

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

Source: Kenanga Research - 25 Jan 2019