• Bottomline missed ours and consensus estimates

• Topline has shown an on-year improvement

• In 1QFY20, infrastructure construction segment made up 58.45% of total revenue but only 14.9% of PBT

• Outstanding order book stood at RM1.3b

• Revised earnings downwards

• Maintain BUY with lower TP of RM1.35 (from RM2.08)

Bottomline missed ours and consensus estimates. Muhibbah reported 1QFY20 core net profit of RM5.1m which came below ours and consensus estimates, accounting for only 6% and 5% of FY20F respectively. Its 1QFY20 earnings fell -84.6%yoy largely due to lower profit contribution from airport concession division which has been adversely impacted by the global COVID-19 pandemic.

Topline has shown an on-year improvement. The Group’s reported revenue of RM333.5m in 1QFY20, higher by +22.4%yoy from RM272.4m in 1QFY19. However, on a quarterly sequential basis, the revenue shrank by -29.4%qoq. The on-quarter decline was largely due to the suspension of works imposed during the MCO period which affected Infrastructure and Cranes divisions negatively.

In 1QFY20, infrastructure construction segment made up 58.45% of total revenue but only 14.9% of PBT. For this sector, the group booked revenue of RM251.8m (-7.1%yoy) and PBT of RM3.3m (-72.1%yoy). It is worth noting that Muhibbah has completed the catering facility at the New Doha International Airport in Qatar. On top of that, there are a few on-going projects in Qatar, namely (1) construction of roads & infrastructure works in Manateq’s Economic Zone, (2) additional work order associated to the construction of roads and infrastructure works at Um Alhoul Economic Zone (QEZ-3), and (3) design construction and erection of synncrolift and travel lift with Ancillaries and all associated works.

Outstanding order book stood at RM1.3b. As of 17 June 2020, the Group's total outstanding secured order book stood at RM1.3b, i.e. construction division (RM772m) and cranes division (RM521m).

Revised earnings downwards. We cut our FY20F and FY21F earnings by -39.1% and -35.2% due to (i) notable underperformance of 1QFY20 results, and (ii) we believe the fallout from Covid-19 pandemic will continue to impact negatively on the Group’s airport business in Cambodia during the next 12-18 months.

Maintain BUY with lower TP of RM1.35 (from RM2.08). We ascribe PE multiples of 10x to FY21EPS which reflects the conservative current sector wide valuation on construction stocks. Our TP implies a +48.86% upside.

Source: MIDF Research - 23 Jun 2020