Muhibbah clinched a MYR116m contract from Tecnicas Reunidas SA as part  of  Package  III  of  the  construction  of  Petronas’  Refinery  and Petrochemicals  Integrated  Development  (RAPID).  We  upgrade  our recommendation  to  BUY  (from  Neutral)  with  a  slightly  higher  TP  of MYR2.38  (20%  upside)  from  MYR2.33,  as  we  marginally  increase  our FY15/FY16 earnings forecasts by 2%.

Salient  details.  Recall  that  Tecnicas  Reunidas  SA  was  awarded  the third  engineering, procurement, construction and commissioning (EPCC)contract for RAPID worth  MYR5.3bn (USD1.5bn) from Petronas for the construction  of  kerosene,  diesel,  naphtha,  and  cracked  naphtha hydrotreating  units  as  well  as  continuous  catalytic  reformer  units. Muhibbah  Engineering  (Muhibbah)  was  awarded  a  portion  of  this package  worth  MYR116m  (USD32m)  for  the  design  and  building  of temporary  construction  facilities  and  an  accommodation  camp  for  the package.  The  contract  is  due  to  start  in  1Q15  and  is  expected  to  becompleted by 1Q16.

RAPID underway.  To  date, five EPCC contracts have been awarded to foreign  contractors.  Muhibbah  is  confident  of  bagging  at  least  two subcontracting  works  from  the  packages.  Note  that  the  packages  that have been awarded so far are only for the refinery part of RAPID,  while petrochemical  packages  will  be  awarded  out  once  construction  of  the refinery is underway.  Muhibbah expects the petrochemical packages to be awarded by the end of this year or early 2016.

Outlook.  Muhibbah’s  current  orderbook  stands  at  MYR2.3bn  with  the crane  division  making  up  the  bulk  of  the  orderbook,  followed  by construction  and  marine  works.  The  company’s  current  tenderbook stands  at  MYR5bn,  with  half  of  it  made  up  by  RAPID  subcontracting works.

Upgrade to BUY.  We  upgrade Muhibbah to  BUY  (from Neutral)  with a higher  TP  of  MYR2.38  (20%  upside)  from  MYR2.35  on  the  back  of:  i) potential wins from RAPID, ii) secured orderbook of MYR2.3bn, and iii) being a beneficiary of the stronger USD  as RAPID contracts and 90% of its  crane orderbook are in USD.  We increase our FY15/FY16  earnings forecasts  only  marginally,  as  we  have  factored  in  MYR500m  potential wins from RAPID. A more substantial win from RAPID will provide further upside to Muhibbah’s earnings.

Cambodian  airports.  On  a  side  note,  recall  that  Muhibbah  has  a  30%  stake  in Cambodian airports under a consortium, with the rest of the stake held by Vinci SA (DG EN, NR). The airports are seeing double-digit passenger growth every year. The consortium  is  planning  to increase  the  retail  floor  space  by  three  tim es  and  at  the same time double the airports’ passenger capacity to 12m per annum from 5.6m.

Source: RHB