KEY INVESTMENT HIGHLIGHTS

• Muhibbah recorded RM29.4m (-22%yoy) PATAMI in 3QFY2019

• In 3QFY2019, the group’s PBT declined -28.7%yoy to RM55.4m

• Infrastructure construction contributed 53.8% to Muhibbah’s overall revenue in 3QFY2019 at RM179.4m (- 68.9%yoy)

• Maintain BUY with TP of RM3.73

RM29.4m earnings logged in 3QFY2019. Compared to 3QFY2018, the group’s earnings declined by -22%yoy to RM29.4m. Cumulatively, the group booked PATAMI of RM93.3m (-12.7%yoy) in 9MFY19 which accounted for 71% and 62% of our and consensus respective full year estimates.

During the period, PBT had a notable decline of -28.7%yoy to RM55.4m. We understand that the PBT contraction was due to the massive reduction of interest income and operating profit compared to the year before. It is worth mentioning that contribution from infrastructure construction segment of RM179.4m was lower by - 68.9%yoy. On that account, it led to a -23.7%yoy drop in PAT to RM49.1m, bringing the cumulative sum in 9MFY2019 to RM153.1m (- 9.0%yoy).

In the quarter, construction segment made up 53.8% of total revenue but only less than 1% in PBT. It reported the lowest PBT of RM0.3m (-99.2%yoy) compared to cranes and concession segment. This was attributable to the PBT margin deteriorated by -2.9ppts(yoy) in the period. As of 28 November 2019, Muhibbah`s total outstanding order book in hand for the construction was at RM1b (excluding cranes at RM564m). In the near term, we expect the marine and concession segment to lend meaningful support to mitigate impact from the slowdown in construction activities. In CY20, we believe the sector to stage recovery as more project announcements are expected to come on stream. While the sector remains vulnerable to cyclical factors, we are encouraged that Muhibbah continues to pursue infrastructure and marine projects from both overseas and domestic markets as well.

Impact to earnings. We maintain our forecasts as the latest earnings came in within our expectation.

Source: MIDF Research - 29 Nov 2019