Muhibbah’s Cambodia Airports ended 2015 on a strong note, with another double-digit growth in passenger traffic. Maintain BUY and MYR3.34 TP (47% upside). On its infrastructure side, Muhibbah is banking on winning more contracts from RAPID after securing MYR860m worth of projects so far. Earnings growth would be driven by its infrastructure construction arm, while stable cash flow should be provided by its Cambodian airports concession.

Cambodia Airports still strong. Muhibbah Engineering (Muhibbah) owns a 21% effective stake in Cambodia Airports, which manages three internationalairports namely Phnom Penh, Siem Reap and Sihanoukville Airports, in a consortium with Vinci SA, a French conglomerate. Cambodia Airports posted double-digit growth in FY15 passenger traffic, mainly driven by tourist arrivalsfrom China. Phnom Penh is the capital of Cambodia and has several casinos,

Siem Reap is where the UNESCO World Heritage site Angkor Wat is located while Sihanoukville is Cambodia’s premier seaside destination. Previously, Cambodia Airports was able to cater to a total of 6m passengers pa. The consortium recently expanded the airport capacity to 12m passengers pa with expectations of double-digit passenger growth until 2020. The concession for Cambodia Airports will last until 2040.

Refinery and Petrochemical Integrated Development (RAPID) heating up.With the RAPID project due to come online in 2019, we expect peak capex spending to come in from end-2017 through 2018. We believe Muhibbah is one of the beneficiaries of this mega project, given its track record in oil & gas and petrochemical infrastructure. The company has so far won MYR860m worth of projects from RAPID and we expect it to add at least another MYR1bn worth of contracts from this project.

Tenderbook of MYR5bn. Muhibbah’s tenderbook stands at MYR5bn with bids from all its three main segments – infrastructure construction, marine infrastructure and oil & gas infrastructure. We estimate works from RAPID to comprise one-third of its tenderbook.

Maintain BUY and MYR3.34 TP. We believe Muhibbah’s earnings growth would be driven by its infrastructure projects with the likelihood of new RAPID contracts, while its Cambodian airports should provide the company with stable cash flow. We make no changes to our earnings forecast and BUY recommendation, with our SOP-based TP unchanged at MYR3.34 (47% upside).

Risks. Risks to our earnings forecasts include lower-than-expected orderbook replenishment and contract cancellations.

Stake in Cambodia Airports. Recall that Cambodia Airports holds the concession to operate three Cambodian international airports in Phnom Penh, Siem Reap and Sihanoukville. The concession stake will expire in 2040. Muhibbah has a 21% effective stake in the airport concession, while 70% is held by Vinci SA, a listed French engineering, construction and concession company. The consortium recently expanded the airports to double its total capacity of 12m passengers pa from 6m. The concession will last until 2040.

Double-digit growth in passenger traffic. For the sixth consecutive year, Cambodia Airports charted double-digit growth in FY15 passenger traffic, driven by its two main airports of Phnom Penh and Siem Reap. According to the Ministry of Tourism Cambodia, approximately 95% of visitors to Cambodia were leisure travellers. Phnom Penh is the capital and largest city in Cambodia and has various casinos, while Siem Reap is where the UNESCO World Heritage site Angkor Wat is located. Sihanoukville Airport, which was recently upgraded to an international airport owing to the province’s popularity as the premier beach and resort destination in Cambodia, saw passenger growth of 118% YoY in 2015. Figure 1 shows passenger traffic and aircraft movements at Cambodia Airports. Surge in Chinese tourist arrivals. Vietnam is the largest market for Cambodia, followed by China and South Korea. Chinese tourist numbers have risen sharply to 629,786 as atNov 2015, from only 128,000 in 2009. The Ministry of Tourism Cambodia has not yet released the full-year numbers for 2015 (traffic numbers are only until Nov 2015). Figure 2shows the top 10 tourist arrivals to Cambodia.

Projects won so far. We estimate that Muhibbah had won MYR1.1bn worth of projects in FY15 (Figure 3), with the majority of the awards (MYR860m) coming from RAPID. Going forward, we expect the company to continue to win more RAPID contracts. RAPID projects make up an estimated one-third of Muhibbah’s current tenderbook of MYR5bn, while the rest of the tenders are infrastructure construction and marine infrastructureprojects. We expect Muhibbah to win MYR600m worth of projects in FY17 and MYR800m in FY18 across all three segments. We believe our expectations are conservative, considering that RAPID’s peak capex spending should kick in from end-FY17 to FY18.

Maintain BUY and MYR3.34 TP. Contribution from its airports concession makes up 25% of Muhibbah’s PBT. We still expect its airports to chart double-digit passenger growth in the next three years as its expansion plans bear fruit. Going forward, we expect Muhibbah to continue to win jobs from RAPID, banking on its track record in oil & gas and petrochemical infrastructure. We make no changes to our earnings forecast. Maintain BUY with an SOP-based TP of MYR3.34.