MUHIBAH has received contracts worth RM165.0m from Turnpike Synergy Sdn Bhd for the construction of noise barriers on SUKE and DASH highway. BUY with a Target Price of RM3.20 which implies 9.1 x FY19E PER as we believe that MUHIBAH has minimal risk in the local construction scene compared to other contractors. Furthermore, our valuation is reasonable when stacked against players like Malaysia Airports Holdings (AIRPORT) that is traded at >20x. To recap, its associate contribution of which the bulk is from its Cambodia airport made up c.60% of its 9M18 pre-tax profit is the major earnings driver for MUHIBAH. 

Based on our understanding, the construction of noise barriers is for the entire alignment of SUKE and DASH highways. Construction works would commence by the end of Jan 2019 and expected to complete in 1Q21. 

This marks its first contract win for the year and we are neutral as the contract value of RM165.0m is in line with our order-book replenishment assumptions of RM550.0m for FY19. Assuming a conservative pre-tax margin of 10%, the noise barrier contracts would contribute c.RM5.7m to its bottom-line per annum. 

The contracts award brings MUHIBAH's outstanding orderbook to c.RM2.0b (construction: c.RM1.5b, cranes: RM0.5b) providing at least two years of earnings visibility. As for its associate, i.e. Cambodian Airports, we believe traffic growth will remain robust at high teens and remains as one of its major earnings contributors. 

Going forward, we expect they would be able to maintain traffic growth momentum, driven by traffic from China. As for MRT2 and LRT3, we expect some review in costs but would be insignificant to MUHIBAH as its exposure to them is only at 10% of its outstanding order-book.

Source: Rakuten Research - 25 Jan 2019