Investment Highlights

• 9MFY17 results below expectation

• Deploying more resources to Qatar

• Earnings estimates intact

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

1HFY17 results met expectation. Muhibbah’s 9MFY17 earnings of RM68.4m (-21% YoY) met ours and consensus’ expectation at 50.1% and 57.9% of full year estimates respectively. The results illustrated lower revenue of RM1.08bn (-15%YoY) coupled by higher foreign currency translation of RM32.7m (-22.7%) and higher tax expense of RM17.1m (-56.8%).

Deploying resources to Qatar. At first glance, it may seem that Muhibbah’s lower earnings is impacted by lower revenue but we reckon that it is deploying more capital to its project in Qatar to expedite the construction progress hence, the decreased in foreign translation.

Earnings estimates intact. We maintain our earnings forecast for FYE17 and FYE18.our forecast premised on 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 . Its airport concession 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.

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 Nov 2017