FY18 CNP of RM161.4m came within our, but above consensus, expectations, making up 102%/107% of respective estimates. We believe that consensus could be a tad conservative with their estimates on associates or construction progress billings. A 7.5 sen dividend was declared, higher than our expectations of 7.0 sen. No change to our FY19E earnings, and we introduce our FY20E earnings of RM164.8m. Downgrade to MP (from OP) with an unchanged SoP-driven Target Price of RM3.20

Within our, but above consensus. FY18 CNP of RM161.4m came within our, but above consensus, expectations, making up 102%/107% of respective estimates. We believe that consensus could be a tad conservative with their estimates on associates or construction progress billings. A 7.5 sen dividend was declared, higher than our expectations of 7.0 sen.

Results highlight. YoY, FY18 CNP grew 32%, backed by: (i) growth in revenue (+11%), and (ii) improvement in EBIT margin to 10% (+5ppt) backed by its crane division. QoQ, 4Q18 revenue fell 24%, but its CNP grew 59% driven by: (i) strong improvements in EBIT margin to 12% (+5ppt), (ii) lower interest cost (-55%), and (iii) lower effective tax rate of 9% (-8ppt). Its associate contribution fell 19% as a result of slower billings from its road maintenance concessionaire.

Company outlook. MUHIBAH’s outstanding order-book currently stands at c.RM1.7b (construction: c.RM1.1b, cranes: RM0.6b) providing at least two years of visibility. As for its associate, i.e. Cambodian Airports, we believe its traffic growth will remain robust in the teens driven by traffic from China To recap, Cambodian Airports registered passenger traffic growth of 20%, YoY. Going forward, we expect they would be able to maintain the traffic growth momentum, driven by traffic from China.

Earnings estimates. Post results, no changes to our FY19E earnings, and we introduce our FY20E earnings of RM164.8m.

Downgrade to MARKET PERFORM (from OUTPERFORM) after share price has gained 7% YTD with an unchanged SoP-driven Target Price of RM3.20, which implies 9.8x FY19E PER. We deem the valuation is reasonable as it is within the range of our ascribed multiple of 6.0-11.0x for contractors within our universe.

Risks include: (i) higher/lower than expected order-book replenishment target, (ii) expedited/delays in construction progress, and (iii) stable/sharp spike in raw material costs.

Source: Kenanga Research - 01 Mar 2019