Muhibbah announced that it has won, together with JV partner VA Tech Wabag (with a 30:70 proportion), a MYR949.6m RAPID contract. Muhibbah’s portion is valued at MYR285m, which brings its YTD contract wins to MYR735m. Muhibbah is elevated to a joint main contractor with this award win. We upgrade FY16F/FY17F earnings by 5% respectively and maintain our BUY call, with a higher TP of MYR3.43 (from MYR3.29, 86% upside).

Salient details. Muhibbah Engineering (Muhibbah) announced that it has been awarded the contract for the front-end engineering design (FEED) and engineering, procurement, construction and commissioning(EPCC) of the effluent treatment plant for the refinery and petrochemicals integrated development (RAPID) project. The contract, worth MYR949.6m, was awarded by Petronas to Muhibbah Engineering(30%) and its partner (70%), VA Tech Wabag (VATW IN, NR), an Indian company that specialises in water and waste water management. The contract is expected to commence in the third quarter of FY15 and be completed by end-2018.

RAPID is underway. We understand that with this contract win, Muhibbah Engineering is now elevated to the status of joint main contractor from a sub-contractor previously. YTD, it has managed to bag MYR735m worth of contracts – with MYR559m coming from RAPIDrelated projects. Other RAPID projects that Muhibbah has won include subcontracts from Tecnicas Reunidas (TRE SM, NR) and Toyo Thai (TTCL TB, NR). We understand that its RAPID-related tenderbook now stands at approximately MYR2bn and its orderbook is currently at MYR2.5bn.

Maintain BUY with a higher TP of MYR3.43. We raise our earnings for FY16/FY17 by 5% respectively, as RAPID wins from Muhibbah haveexceeded our expectation, but keep our FY15F earnings unchanged. Maintain BUY, as we upgrade our SOP-based TP to MYR3.43 (from MYR3.29) on the back of our earnings upgrade. We continue to like Muhibbah as we believe it would continue to ride on the back of RAPID projects rolled out, given its track record in petrochemicals and oil & gasfacilities construction. Its Cambodian airports are also reporting strong double-digit YoY passenger growth numbers.

On RAPID. This contract forms part of the utilities and ancillary facilities for RAPID which is worth a total of USD11bn. Note that the petrochemical packages, worth USD6.4bn, have yet to be given out. We expect the packages to be handed out in late 2015 or early 2016, given the start-up date of the RAPID refinery and steam crackers which is scheduled to start in 2019. Other beneficiaries of the RAPID project include Petronas Chemicals (PCHEM MK, BUY, TP: MYR7.14), Malaysia Marine and Heavy Engineering (MMHE MK, NEUTRAL, TP: MYR1.22), Pantech Group (PGHB MK, NEUTRAL, TP: MYR0.79) and KNM Group (KNM MK, NR).

Valuation. We value Muhibbah’s core infrastructure and construction business at 10x FY16F P/E , which is the average of the construction counters’ P/Es (that are within our coverage). Its concession for three Cambodian airports, Phnom Penh International, Siem Reap International, and Sihanoukville International, are valued on a DCF basis at a 12% WACC.

Risks. The key risk to our forecasts would be delays in project awards, as we are forecasting for Muhibbah to win MYR1bn worth of new contracts in FY16 and FY17.