Muhibbah has been awarded the job to construct, fabricate and install a new aromatics chemical complex and as well as facilities for the Lemongrass project in Kuantan by BASF Petronas Chemicals, a joint venture between BASF SE (BAS GR, NR) and Petronas Chemicals (PCHEM MK, SELL, FV:MYR6.11). We keep our earnings estimates for now since the MYR100m contract amount is within our expectation. 

What the Lemongrass contract entails. The new aromatics chemical complex in Kuantan, Malaysia will comprise one production building with other facilities. The scope of works awarded to Muhibbah Engineering (Muhibbah) includes civil construction works, structural steel erection, architectural and sheeting, piping, mechanical, insulation, painting, electrical, instrumentation, scaffolding, warehousing, heavy lifting, heating, ventilation and air conditioning (HVAC) as well as precommissioning. There is a possibility of the contract being extended to commissioning and startup support, but this will be determined at a later date. Construction works, which are expected to take two years to complete, will begin immediately. The MYR1.5bn aromatics complex is expected to start producing in 2HFY16. 

Positive for Muhibbah. We are positive on this development as it indicates that the company’s contract wins are trickling in. We estimate that this contract bolstered Muhibbah’s outstanding orderbook to MYR1.8bn, although this is still less than 1x its FY13 revenue. We note that Muhibbah’s current tenderbook stands at MYR7bn, with half of the bids made up by RAPID. Note that, we have only assumed contract wins from RAPID for approximately MYR100m in FY14. 

Maintain NEUTRAL and MYR3.22 FV. We keep our earnings forecastsat this juncture as the contract value is within our FY14 and FY15 estimates. We maintain our NEUTRAL recommendation on Muhibbah,with our SOP-based FV unchanged at MYR3.22. As a holder of fabrication license from Petronas, we believe the company will be a major beneficiary of the upcoming RAPID project as well as offshore fabrication projects.

Source: RHB