INVESTMENT HIGHLIGHTS

• Insipid 3MFY18 results

• Forex Translation Losses Temporary

• Earnings estimates intact

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

Insipid 3MFY18 results. Muhibbah’s 3MFY18 earnings of RM12.5m (-47% YoY) fell below ours and consensus’ expectation at 9.15% and 9.0% of full year estimates respectively. The results illustrated reversal in foreign currency translation for foreign operations of RM34.5m.

Forex Translation Losses Temporary. Muhibbah’s lower earnings is impacted through the losses of foreign translation which may persist due to USD/MYR’s downtrend. We surmise that it might be related to its current undertaking in Qatar to complete its project with MANATEQ, Qatar. This would mean higher progress billing in the upcoming quarters.

Earnings estimates intact. We maintain our earnings forecast for FYE18 and FYE19.Our forecast premised on the quality orderbook of RM1.9bn, or approximately 48 months orderbook cover backed by recurring cash flow for its concession asset in Cambodia. Its airport concession through partnership with Vinci has contributed 5-year average of 24.0% percent to its operating income.

Recommendation. That said, we downgrade our recommendation to NEUTRAL an adjusted TP of RM3.60 based on sum of parts valuation. Our TP implies a +21.0% upside and earnings yield of 12.6% implying 8.62% spread over 5-y Malaysian Government Securities yield.

Source: MIDF Research - 31 May 2018