INVESTMENT HIGHLIGHTS

• 1HFY17 results met expectation

• PBT lifted by concession segment

• Earnings estimates intact

• Altogether, we reiterate our recommendation to BUY with a TP of RM3.45 per share

1HFY17 results met expectation. Muhibbah’s 1HFY17 earnings of RM67.1m (+33% YoY) met ours and consensus’ expectation at 50% and 57.2% of full year estimates respectively. The results illustrated improvements in segmental PBT from concession albeit lacklustre performance from infra and cranes segment.

PBT lifted by concession segment. Muhibbah’s earnings are imbued by an increased in PBT contribution from segments of: concession which grew from RM31.9m in 1HFY16 to RM64.5m in 1HFY17 (+92%YoY).

Earnings estimates intact. We reaffirm our forecast due to the quality orderbook of RM2.0bn, or approximately 48 months (3.41x construction revenue cover) backed by recurring cash flow for its concession asset in Cambodia which has contributed 5-year average of 24.0% percent to its operating income. Its working capital/FYE18 net income cover is at 2.01x and productive rate of working capital/orderbook cover of 7.2x. Premised on that, we maintain our earnings forecast for FYE17 and FYE18.

Earnings Prospects. We are seeing strong possible influx of projects from Qatar, Petronas and Aramco in Pengerang due to niche technical skills of marine engineering. We are confident that once the ECRL starts then Muhibbah will also reap the patience reward of development Kuantan Maritime Hub especially maintenance, repair and operations (MRO) for naval/security purposed vessels. Moreover, influenced by consistent tourist influx to Cambodia and sturdy working capital, Muhibbah is poised to maintain its profitability trajectory. (Figures 1 & 2).

Recommendation. That said, we maintain our BUY recommendation with a TP of RM3.45 based on sum of parts valuation implying 19.6% upside backed by +8.8% earnings yield with a positive spread of +4.88% against the 10-Y MGS rate of 3.92%.

Source: MIDF Research - 30 Aug 2017