1H19 CNP of RM66.4m came in within expectations, making up 42%/41% of our/consensus full-year estimates. No dividends were declared, as expected. No changes to our FY19-20E earnings. Maintain OP with an unchanged SoP driven Target Price of RM3.20.

Within expectations. 1H19 CNP of RM66.4m came in within expectations, making up 42%/41% of our/consensus full-year estimates. No dividends were declared, as expected.

Results’ highlights. YoY, 1H19 revenue saw a tremendous improvement of 50%, thanks to its construction and crane divisions, which registered growth of 90% and 27%, respectively. However, its 1H19 CNP fell 24%, due to higher effective tax rate of 11% (+3ppt) and higher minority interest contribution (+16%) which we believe a higher proportion of earnings contribution came from its crane division. QoQ, 2Q19 CNP fell 27% despite higher revenue (+109%) due to: (i) higher effective tax rate of 14% (+5ppt), (ii) higher interest expense (+255%), and (iii) lower contribution from its associate, i.e. Cambodian Airports (- 38%).

Company outlook. MUHIBAH’s outstanding order-book currently stands at c.RM1.6b (construction: c.RM1.1b, cranes: RM0.5b) 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 which we believe will maintain the traffic growth momentum going forward.

Earnings estimates. Post results, no changes to our FY19-20E earnings.

Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM3.20, which implies 9.3x FY20E PER. We deem the valuation as reasonable as it is within the range of our ascribed multiple of 6.0-11.0x for contractors within our coverage universe.

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

Source: Kenanga Research - 30 Aug 2019