Muhibah's 3QFY23 result surprised positively from a turnaround in its construction, crane and concession segments. The combined order book for the former two segments swelled from RM1.98bn in 2QFY23 to RM2.41bn in 3QFY23 with the concession segment riding on the recovery within its Cambodian airports’ passenger traffic. BUY with a TP of RM0.82 based on SOP valuation (refer to below).

Muhibah’s infrastructure construction staged a robust turnaround to a PBT of RM8.3m (2QFY23: -RM1.0m; 3QFY22: -RM11.4m) in 3QFY23, driven by a combination of revenue growth and margin expansion. Meanwhile, its cranes and intelligent automation segment more than doubled its pretax profit YoY to RM19.9m due to improved cost efficiencies. Muhibah won another two new projects last week with a total value of RM479m, bringing its total outstanding secured order book to RM2.41bn as at 22 Nov 2023. Despite order book level being a concerned previously, it has now surpassed pre-pandemic level of RM1.6bn coupled with better margins profile.

Muhibah’s concession segment has 2 international airports under its belt mainly via its 21% stake in Societe Concessionaire de I’Aeroport (“SCA”), experienced a substantial surge in profit primarily due to the YoY increase in total passengers traffic surging from 1.4m to 3.69m. After the start of the New Siem Reap Airport in October 2023, management has also shared that it handed over the Siam Reap Airport operation and a cash compensation of US$63m has been received by SCA. We reckon that the concession segment will continue to deliver commendable figures as operating leverage kick-in gradually in-line with recovery in number of tourists (3Q23 passenger level at only 43% of 3Q19).

Muhibah maintains a low net gearing of <10% thus enables it remain flexible in garnering more contracts going forward. In the view of Favelle Favco already accounting for 76.5% of Muhibah’s market capitalization (based on RM0.735 per share). Based on an unchanged NPV estimate for the concession of RM152.3m and a 10x PER for infrastructure construction FY24 EPS, we revised our TP slightly lower to RM0.82 (reflecting Favelle Favco’s lower market capitalization).

Source: Rakuten Research - 29 Nov 2023

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