INVESTMENT HIGHLIGHTS

• Earnings within expectations

• Construction revenue slipped -6.4%yoy in 1QFY19, due to deferred recognition of LRT3 and completion of some of infra jobs in the quarter

• Airport didn’t disappoint, with continuous healthy +10%yoy growth in number of passengers

• We recommend a BUY on the stock with unchanged TP of RM3.73

Earnings within expectations. Muhibbah 1QFY19’s PATAMI came in within our and consensus expectations at 25.3% and 20.3% of respective full year estimates. Its PATAMI is supported by a broad-based increase in income from cranes and concession segments. Revenue was reported at RM272.4m, an increase of +9.4%yoy compared to last year.

Construction segment. In the quarter, construction revenue slipped - 6.4%yoy in 1QFY19, due to deferred recognition of LRT3 and completion of some of infra jobs. As at 23 May 2019, its outstanding orderbook stood at RM1.1b, providing approximately two-year of earnings visibility. Going ahead, we believe construction is likely to fare better in 2HFY19, as the progress shifts into higher gear.

Airport business didn’t disappoint, with continuous healthy +10%yoy growth in number of passengers in 1QFY19. The trend also corresponded with the cargo and retail segments, with demand grew by +12.0%yoy and +11%yoy respectively. Subsequent to this, we saw the contribution from concession grew +17.2%yoy at PBT level to RM50.3m.

The crane segment reported earnings surge by >100%yoy to RM18.5m due to increase in sales in 1QFY19. As at 23 May 2019, the group’s outstanding orderbook stood at RM528m from the global oil and gas, shipyard, construction and wind turbine industries. The majority of the orderbook comprises oil and gas cranes for the offshore oil and gas exploration and production activities at 79%. The remainder 21% is from the shipyard, construction and wind turbine industry. In recognition of this, modest contribution appears within reach for the year, underpinned by its effort in increasing tower crane rental fleet to improve rental income globally.

Impact to earnings. No change to forecasts as earnings came in within estimation range.

Recommendation. We believe the prospect remains encouraging for Muhibbah, taking into account the support from its airport concession and the crane business. As a construction company, its presence in other specialised business will provide competitive edge against the other domestic construction players. Maintain BUY with an unchanged TP of

RM3.73.

Source: MIDF Research - 3 Jun 2019