INVESTMENT HIGHLIGHTS

• FY16 earnings met expectations

• Improved pretax profit from 2 key segments

• Earnings forecasts for FYE16/FYE17 unchanged

• Altogether, we reiterate our BUY recommendation with a TP of RM3.05 per share

FY16 results met expectations. Muhibbah’s FY16 earnings of RM105.5m (+21% YoY) met ours and consensus’ expectations at 96.4% and 103% of full year estimates respectively. The results illustrated improvements in segmental PBT from infrastructure and concession.

Improved PATAMI contributed by 2 key segments. Muhibbah’s earnings are imbued by an increased in PBT contribution from: (i) concession segment which grew from RM87.9m in FY15 to RM60.88m in FY16 (+44%yoy), and (ii) infrastructure segment which increased from RM99.01m in FY15 to RM88.3m in FY16 (+12%yoy). Even though its total PBT shrunk from FY15’s RM178.3m to RM171.4m in FY16 (-4%yoy) the impact was due to lower interest income which decreased from RM22.1 in FY15 to RM15.5 in FY16. Hence, the slight decrease at total PBT level is not affected by lower revenue from projects.

Earnings estimates intact. We reaffirm our forecasts due to the quality orderbook of RM1.86b, or approximately 36 months (3.5x construction revenue cover) backed by recurring cash flow for its concession asset in Cambodia which has contributed 24.0% to its 5-year average operating income. Its working capital/net income cover is at 1.0x and productive rate of working capital/orderbook cover of 0.06 x. Premised on that, we maintain our earnings forecasts for FYE17 and FYE18.

Job Prospects. Muhibbah is a key contender for jobs under the Qatar Economic Zones managed by Manateq. Possible influx of projects from Qatar is possible due to strong track record with potential packages c.RM200m-RM300m. Furthermore, RAPID will benefit from ARAMCO’s recent agreement with Petronas for an investment of USD7.0bn in Pengerang which will further solidify its rate of development. Subsequently, experienced contractors like Muhibbah will potentially reap some benefits.

Recommendation. We maintain our BUY recommendation with a TP of RM3.05 based on sum of parts valuation. Furthermore, its EV/EBITDA of 12.2x is below peers’ median of 13.9x which presents an attractive level discount

Source: MIDF Research - 1 Mar 2017