INVESTMENT HIGHLIGHTS

• FY17 results met target

• Revenue narrowed but fundamentals are still intact

• Earnings estimates intact

• Nonetheless, we reiterate our recommendation to BUY with a TP of RM3.60 per share

FY17 results met expectation. Muhibbah’s FY17 earnings of RM131.6m (+25% YoY) met ours and consensus’ expectation at 97.0% and 105.7% of full year estimates respectively. The results illustrated lower revenue of RM1.3bn for FY17 (-28%YoY) compared to RM1.9bn in FY16. The boost in profit was contributed by shares results of associates which shot-up from RM83.8m in FY16 to RM147.2 (+76.0%YoY).

The revenue narrowed but fundamentals are still intact. Muhibbah fundamentals such as its book value and debt levels are in good shape compared to its peers. (Figure 1). Muhibbah’s core strength lies in its unique capabilities of marine engineering and industrial fabrication. Thus, compared to other peers in the KLCon Index. We reckon that Muhibbah can replenish their orderbook with projects in Qatar and domestically.

Earnings estimates intact. We maintain our earnings forecast for FYE18 and introduce FYE19 estimates 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 . The airport concession through its partnership with Vinnci has contributed 5-year average of 24.0% percent to its operating income.

Dividend announced. Based on the positive results, Muhibbah announced a 7-sen dividend which equals to 2.25% hence meeting our forecast for FY17

Recommendation. That said, we maintain our BUY recommendation with a TP of RM3.60 based on sum of parts valuation implying +13.8% upside.

Source: MIDF Research - 1 Mar 2018