INVESTMENT HIGHLIGHTS

• Results beyond estimate, accounting for 117.0% of our expectation

• PBT seen soaring, due to better margin realized

• Change in estimate due to better margin fetched

• We reiterate BUY with higher TP of RM3.73

Results beyond our estimate. Muhibbah’s 12MFY18 earnings of RM144.8m (+10.0%yoy) met consensus’ expectation at 96.4% but ahead of our full year estimate at 117.0%. Moreover, the group’s revenue grew by 10.5%yoy to RM1.5b in 12MFY18. The positive deviation from our earnings forecast was due to better than expected margin realized. We understand that overall earnings improvement was largely driven by construction division which commands 53.5% of total PBT growth. Whilst the revenue from construction division was mostly flat at +0.9%yoy, its PBT has grown strongly underpinned by better margin (+2.8ppts-yoy) fetched from projects.

PBT seen improving. Muhibbah recorded PBT of RM71.0m in 4QFY18, posting a significant +33.0%yoy increase from the same period last year. Accordingly, the cumulative sum in 12MFY18 grew +19.5%yoy to RM262.1m.

Changes in estimates, due to better margin fetched. We adjusted our earnings forecasts to reflect on the deviation. We based our forecast on the quality order book of RM1.7bn, supported by recurring cash flow for its concession assets in Cambodia. Following our earnings adjustments, we arrived at PATAMI of RM130.7m and RM149.9m for FY19F and FY20F respectively. Our new estimates were arrived after taking into account the improvement in bottom-line margins, which we believe will be supported by the increase in contribution from airport concessions.

Maintain BUY. Given the latest change in estimates, we maintain our

BUY recommendation on the stock with an adjusted TP of RM3.73. We ascribe PE multiples of 15x to FY19EPS, which reflects the conservative current sector wide valuation on construction stocks. Our TP implies a +26.8% upside and earnings yield of 10.4%.

Source: MIDF Research - 1 Mar 2019