Muhibbah Engineering announced a private placement of up to 10% of new shares. The gross proceeds from the placement will be utilised to pare down its borrowings and to fund working capital. We continue to like the company for its involvement in various infrastructure projects in Peninsular Malaysia, coupled with the strong cash flow coming from its Cambodian airport concession. Ex-placement, our TP will be MYR3.03, taking into account the larger share base. Maintain BUY, with a TP of MYR3.34 (42% upside)

Salient details. Muhibbah Engineering (Muhibbah) is proposing a private placement of up to 10% of new shares in one or more tranches. The proceeds from the placement is expected to be utilised to pare down its debt as well as finance working capital. The company has yet to set an issue price at this juncture.

Assuming a placement price of MYR2.32 which is at a 2.1% discount to Muhibbah’s 5-day weighted average market price, the net proceeds from the placement after taking out placement expenses will come up to approximately MYR109m. The majority of the proceeds will be used to pare down its debt while the rest will be used to finance working capital within twelve months from the date of completion of the private placement. From our numbers, this exercise is expected to save Muhibbah MYR4.6m in interest expense this year. Outlook. Muhibbah’s orderbook currently stands at MYR2.3bn across all three core segments, construction, shipbuilding and crane manufacturing. Recall that Muhibbah has won a total of MYR860m worth of contract from the refinery and petrochemicals integrated development (RAPID) project. Apart from RAPID, Muhibbah will be looking to participate in projects such as the Mass Rapid Transit 2 (MRT 2), expressways and other infrastructure worksCambodian airports. Muhibbah owns the concession to operate three Cambodian international airports in Phnom Penh, Siem Reap and Sihanoukville. Having recently doubled its passenger capacity to 12m from 6m, we are expecting double-digit passenger growth for every year until 2020. The concession to operate the Cambodian international airports is likely to last until 2040. Muhibbah also recently announced a new contract of USD23m to construct a new domestic terminal for Phnom Penh airport.

Maintain BUY, with an unchanged TP of MYR3.34. We make no changes to our earnings and share base pending the completion of the private placement. Our TP will be lowered to MYR3.03 to take into account the larger share base ex-placement (Figure 1). We continue to like Muhibbah for its exposure to the infrastructure sector in Malaysia as well as the strong cash-generative ability of its Cambodian airport venture. Maintain BUY.