Muhibbah Engineering continues to win RAPID-related contracts as it announced an MYR300m award for the construction of a temporary executive village and management office, due to be completed in Nov 2016. Maintain BUY with unchanged SOP-based TP of MYR3.34 (51% upside). YTD, the company has won MYR1.1bn worth of new contracts, with RAPID-related jobs contributing MYR860m.

Salient details. Muhibbah Engineering announced that it was awarded by Petronas a contract for Package 20A-3 for the engineering, procurement, construction and commissioning for temporary executive village and temporary management office facilities for the Refinery and Petrochemicals Integrated Development (RAPID) project for a total contract price of MYR300m. The construction is expected to commence immediately and is expected to be completed by Nov 2016.

YTD contract win stands at MYR1.1bn. It is proving to be a good year for Muhibbah as the company has managed to secure MYR1.1bn worth of new contracts YTD. On RAPID-related projects, the company has so far secured MYR860m. We believe there will be more to come from RAPID for Muhibbah, as the first EPCC contract for the petrochemical package was only handed out in Nov 2015 by Petronas Chemicals (PCHEM MK, BUY, TP:MYR7.56), with at least two more major EPCC contracts to be awarded. We understand from Petronas Chemicals that peak spending for capex for its participation in RAPID will occur in mid-2017 to end-2018, which we believe will provide plenty of opportunities for Muhibbah. Recall that with Muhibbah’s Sep 2015 award win for an effluent treatment plant, it is now elevated to the status of a main contractor.

Maintain BUY with TP of MYR3.34. We make no changes to earnings as the amount of the contract falls within our orderbook replenishment figure for 2016. We continue to like Muhibbah as it remains a beneficiary of RAPID going full steam ahead, supported by its MYR2.4bn orderbook as well as its Cambodian Airports concession – which continues to provide stable cash flow.

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Company Profile

Muhibbah is a niche global oil & gas and infrastructure specialist that is involved in construction, crane manufacturing, shipyard and concession businesses.

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Source: RHB Research - 2 Dec 2015