Investment Merits

• Orderbook of MYR1.73bn

• Recovery in oil & gas sector would benefit its crane segment

• Stable earnings from Cambodia Airports

Company Profile

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

Highlights

Orderbook of MYR1.73bn. The majority of Muhibbah’s MYR1.73bn orderbook came from its infrastructure, crane and shipyard division. Muhibbah is concentrating on more marine and infrastructure jobs in Malaysia as well as overseas to grow its orderbook. We understand that its current tenderbook stands at MYR5bn.

Crane business. Orderbook at its crane business stood at MYR620m as of February. The orders are coming from the oil & gas, shipyard, construction and wind turbine industries. Its crane subsidiary announced that it was awarded MYR64m worth of tower cranes orders in January, ensuring earnings visibility into FY17.

Strong growth at its airports. Cambodia Airports’ passenger growth came in 9% higher YoY in FY16, partly due to the completion of terminal expansion at Phnom Penh and Siem Reap airports. We expect FY17 to register passenger growth of 11%, driven by higher economic activities as well as growth in the tourism industry.

Company Report Card

Latest results. FY16 earnings came in MYR106m, flat when compared to its FY15 earnings.

Balance sheet/cash flow. Muhibbah was in a net cash position of MYR117m at the end of FY16. It grew its cash position by MYR108m during the year.

ROE. For FY16, ROE came in at 11.8%.

Dividend. Muhibbah’s dividend payout ratio for the past three years has been above 20%, translating into DPS of between 4-5 sen.

Management. Muhibbah is led by its group managing director, Mr Mac Ngan Boon, who is also its co-founder. He has been the managing director of the group since 1973.

Recommendation

We have a BUY call on Muhibbah, and continue to be positive on the group as a beneficiary of the Refinery and Petrochemical Integrated Development (RAPID) project, as well as other infrastructure projects in West Malaysia. The group’s Cambodian airport concession should continue to provide strong recurring earnings. We value Muhibbah with an SOP methodology, arriving at our TP of MYR3.75. Its core business is valued at FY17 P/E of 10x, while its airport concession is valued using DCF with WACC of 12%.

Source: RHB Securities Research - 5 May 2017