4QFY20 CNL of RM21.6m brought FY20 to a CNL of RM72.3m – within our but below consensus expectation. No dividend as expected. Keep FY21E CNP and introduce FY22E CNP of RM39m. We believe Muhibbah is poised for further rebound as vaccination efforts intensify and the economic recovery narrative strengthens. With current share price still not reflecting the deep value in its Cambodian airports, we maintain OP and TP of RM1.25.

Within our but below consensus expectations. 4QFY20 core net loss (CNL) of RM21.6m dragged FY20 down further to a CNL of RM72.3m, within our projection of RM70.7m but below consensus’ CNL estimate of RM53.7m. We believe consensus may have been overly optimistic over the recovery prospects for its Cambodian airports. No dividends as expected.

QoQ, 4QFY20 CNL of RM21.6m improved against 3QFY20 CNL of RM30.7m mainly due to: (i) stronger associate contributions of RM6.1m (versus a loss of RM1.3m) from improved toll maintenance concession, and (ii) stronger PBT from its crane segment (+82%) attributable to higher amount of works done (+43%).

YoY, FY20 sank into the red to a CNL of RM72.3m mainly due to the Covid-19 impact resulting in weaker contributions from all its business segments. Note that its associate contributions were hit hard (-93%) as its 21%-owned Cambodian airports saw passenger traffic plunging to 2.17m (-81%) from 11.6m a year prior.

Rebound in the horizon. With global vaccinations underway, we anticipate an imminent recovery in the travel industry. Nonetheless, we think that actual passenger traffic for FY21 will still remain weak as it will take time before borders gradually re-open. We only see a significant recovery of airport passenger traffic in FY22. Meanwhile, the group’s outstanding order-book has shrunk to RM1.0b (<1x cover) due to weak construction contract replenishments.

Keep FY21E earnings unchanged backed by passenger traffic of 3.5m. Introduce FY22E CNP of RM39m on passenger traffic of 7.0m and a construction replenishment target of RM200m.

Maintain OP with unchanged SoP-TP of RM1.25 as the recovery narrative strengthens coupled with its share price level which is still reflecting a bargain for its Cambodian Airports.

In our SoP/share of RM1.25, we have: (i) ascribed a -2.5SD PBV (lowest in our universe) to its construction division due to its volatile earnings and depleting order-book, and (ii) fully omitted Phnom Penh airport from the concession valuation as we understand there is a Chinese party having an airport built within the vicinity (prior to Covid- 19) which could challenge its status as the sole airport concessionaire in Cambodia. However, there has been no update on this new airport since the Covid-19 pandemic started. Should we impute Phnom Penh airport into our valuations, SoP-TP would be enhanced by RM0.85.

Risks to our call 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 - 31 Mar 2021