9MFY21 CNL of RM16.3m is within our, but below consensus overly optimistic, projection. No dividends as expected. With Cambodia allowing vaccinated travellers to visit the country without the need to quarantine since 15th Nov, we believe Muhibah’s Cambodian airports are poised for an imminent rebound. Separately, its construction division’s profitability continued to perform poorly with order-book still deteriorating amidst absence of replenishments. All in, with current share price providing a bargain over its Cambodian airports, we maintain OP with unchanged TP of RM1.25.

Within our expectation but below consensus’. 3QFY21 core net loss (CNL) of RM16.3m dragged 9MFY21 deeper into the red at RM21.5m loss – within our CNL projection of RM20m but below consensus’ optimistic profit projection of RM20m. Despite anticipating a better 4Q on easier restrictions, the rebound should be marginal initially as passenger traffic at its Cambodian Airport will only rise gradually after the country opens up to vaccinated travellers from 15th Nov-21. Its construction segment’s profitability should remain muted given the low outstanding order-book. No dividends as expected.

QoQ, 3QFY21 CNL of RM16.3m plunged into the red against 2QFY21 CNP of RM0.6m mainly due to lower revenue (-33%) on the back of recurring fixed costs, affected by the FMCO. YoY, 9MFY21 CNL of RM21.5m narrowed from RM51m loss registered in 9MFY20 mainly due to stronger PBT contributions at its construction division, attributable to better margin mix projects.

Higher passenger traffic in Cambodia in the near future. Since 15 Nov 2021, the Cambodian government has eased travel restrictions and allowed fully vaccinated travellers to visit the country without quarantine. We are positive on this news and anticipate an exponential rise in passengers starting from FY22.

Construction division continued to deteriorate. Meanwhile, the group’s outstanding order-book has shrunk further to RM0.89b (-6% QoQ; -19% YoY) due to weak contract replenishments. Out of this order-book sum, RM0.586b is from the crane division while the rest are from construction division. Note, order-book has been on a downtrend since 2018 and currently provides <1x revenue cover.

Maintain OP with unchanged SoP-TP of RM1.25 as current share price provides a deep bargain for its Cambodian airports in anticipation for the recovery ahead.

In our SoP/share of RM1.25 valuation, 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 - 30 Nov 2021