• Muhibbah relooked with strong interest

• Orderbook target will be met

• Earnings projection intact but still cautious on cranes

• Nevertheless, we downgrade to Neutral with unchanged TP of RM3.05 due to recent price run up

Muhibbah relooked with strong interest. Recap that the period of 2015-2016; the Street moved its attention from Muhibbah due to its reliance on offshore crane, accounting for c.80% of Favelle Favco’s orderbook. Its quarterly price-to-earnings ratio for the period hovered between 10.06x to 12.02x. Hence, we are not surprised that Muhibbah has been relooked with interest - its share price advanced +23.2% (YTD). This is based on the backdrop of; (i) suppressed PER valuation (ii) potential projects from Qatar and, (iii) forte of crane manufacturing.

Orderbook target will be met. We are expecting that our target of orderbook replenishment rate of RM600m will be met as projects such as the Qatar Economic Zone will dish out more packages due development schedules. We forecast that the available packages suitable for Muhibbah’s capabilities are civil/marine engineering and marine infrastructure in relevance to the construction value chain and its recent award. We estimate that the packages will be between RM200m to RM250m on the back of 9.0% profit margin.

Earnings projection intact but still cautious on cranes. Our earnings estimate for FYE16/17 intact due to its orderbook which amounts to RM2.1bn. However, we are cautious that offshore crane currently stands at 63% or RM428.4m compare to other cranes products of 37% or RM251.6m from Favelle Favco’s total orderbook of RM680m Hence, key downside risks imminent from diminishing sales due to decreased demands in very tight ‘red ocean’ with other global competitors such as Liebherr and Manitowoc as well as oil price doldrums.

Recommendation. Having said that, we downgrade our recommendation to NEUTRAL with a TP of RM3.05 based on our sum-ofparts valuation due to recent share price run-up. We will make adjustments to our TP based on 2 factors pending, either; (i) favourable tourists statistics from Cambodia or (ii) further awards of projects from Qatar.

Source: MIDF Research - 5 Apr 2017