INVESTMENT HIGHLIGHTS

• 6MFY18 earnings came in mixed

• Concession asset contribution supported bottom-line

• Earnings forecast trimmed for FYE18/FYE19

• Altogether, we downgrade our recommendation to Neutral with a revised TP of RM3.15 per share

6MFY18 results came in mixed. Muhibbah’s 6MFY18 earnings of RM69.1m (+3.0% YoY) met ours and but slightly missed consensus’ expectations at 50% and 46% of full year estimates respectively.

Concession asset contribution supported the bottom-line.

Muhibbah’s stagnant earnings are due to decreased in revenue from: (i) infrastructure construction which decreased from RM586.1m in 6MFY17 to RM561.3m in 6MFY18 (-8% YoY) and (ii) cranes - decreased from RM37.8m in 6MFY17 to RM19.1m in 6MFY18 (-47.0% YoY). Furthermore, pre-tax profit increased slightly from 6MFY17’s RM112.4m to RM113.4m in 6MFY18 (+0.01%YoY). But, contribution from concession assets of RM81.4m (+38.0%YoY) supported its bottom line

Earnings estimates tweaked. We tweak our forecasts reflected by changes in; (i) revenue; from RM2.58bn to RM1.58bn (-38.7%) and (ii) earnings; from RM136.3m to RM108.4m (-20.4%). The changes are motivated by our defensive stance on the sombre outlook of the construction sector.

Recommendation. We downgrade our recommendation to NEUTRAL

with an adjusted TP of RM3.15 which is based by rolling over our FYE19 EPS to 15x PE multiple to reflect the changes on our earnings assumption.

Source: MIDF Research - 3 Sept 2018