Muhibbah engineering is dead.


1) issued and diluted shareholding by more than 50%. Most of the new money was used to pay just 10% of its debt. Balance of 90% still is due within 12 months. 

2) People naively said that owners put own money into Muhibbah when committing to the right issue. But are you sure? They got the money by squeezing Favee Favco's reserve to issue unreasonable sum of dividend. Muhibbah's directors also own major shares of FF. So it's not out of their own pockets. They did so because they had no choice. If Muhibbah goes under, they will loss Favelle Favco to banks (as Muhibbah owns more than 60% of FF). 

3) The reason why Muhibbah bought FF's shares few months back is that they want to direct most of the FF's dividend to Muhibbah to pay its debts. 

4) Wise directors left because of these unethical management styles and hopeless situations.

5) Chinese are not coming to Cambodia anytime soon because of Chinese zero covid policy (in addition to other countries with safety concerns). By 2025 (less than 3 years), a new Phnom Penh international airport will replace Vincci & Muhibbah's. 

6) So far, it only got a small JV project for 3 years, but it is extremely insufficient to finance its 900 billions debt. 

7) With inflation and interest rate raising, there will be even fewer project opportunities (main objective of raising rate is to curb spending). And also that increases interest expense of its excessive debts. 



With no banks or projects to finance its 900 billions debts, it has squeezed its own shareholders with right issues and FF's reserves. But macro environment has only made this situation even more miserable to Muhibbah.

yeah so smart that even before getting the new shares, stock price has dropped on par with right issue price, earning zero margin or loss. expect further drop when stock supply increased by 50% on tomorrow. Unfortunately those who exercised thinking to make a quick buck will loss money for their own greed.

why sudden drop? because the company was repurchasing the stocks to keep the price higher than 50 cent during the exercise period, hence the notice for recent share repurchase.

now that people have transferred their hard earned money to the sinking ship, the management has stopped repurchasing to keep the share above 50 cent.

i bet no one can win a lawsuit for own ignorance. so stay poor uptrending, you earned it.

I believe no one should buy the right options. This is a desperate measure of saving the company from going under. 50 cent a share is not 31% discount from market value as advertised, but it is the true value after detailed scrutinization by RHB investment bank. In their latest financial report, asset per share is RM2.30, but why selling only 50 cent a share? There could be only one reason if the management is equipped with reasonable mind, that is no banks willing to finance the 1 billion ringgit debt due in 12 months anymore. Why? because most of the accounting profits recognized as account receivables are questionable, which is unable to translate into real cash flow to settle the debts.

On paper, assets are largely greater than liabilities, but in actual assessment, it's only 20% of reported. This implies that 80% are overstated? that the debts are derived from loss making deals. Remember, only realisable receivable is true profit. Untranslatable one is all paper profit and subject to impairment, which is in the real term - business loss.

So now, the management asks the shareholders to chip in more than half of their investment in the company if not your share value will further drop to 30 cent (from 60 cent). The logic is that they are issuing more than half of current outstanding shares. without paying for their bad decision in business - loss making deals that now making 1 billion debt-, your shares will dilute by more than half. Dilution simply means loss of value, same as your shares drop to 30 cent from current 60 cent.
Dont you agree this is desperate or threatening?
The sharp drop when this is announced is not panic sale bur rather adjustment to reality given above analysis. So the further 50% drop in value if you dont buy the option is not yet accounted for.

So some might ask how about the company prospect?
1) construction is hopeless. this is the sector that got the company into today's misery. All the loss making deals are now surfaced when the management has no more new project's invoices to refinance the debts.

2) marine is a failure. during pandemic, freight charges are at all time high, and shipping companies are ordering more vessel than ever. Yet, the company has not announced any new order for ship building.

3) cambodian airport is done. because the largest passengers to cambodia is chinese, when China government adopts zero covid policy, it is unlikely to see any passenger into cambodia at least 1 year after pandemic is over. Chinese government will not open borders that soon, so even one year window is very optimistic, in which case is 2024, assuming omicron is the last variant, i highly doubt so.

4) crane sector is the only reason why the management is gamble with 25million for issuing this options. Imagine if the company is bankrupt, and debt collectors taking over all Muhibbah's assets, including 60% of favelle favco's shares. Then, the management will loss control of both companies. That's the only reason why the management is trying to save the company by self funding 25m to pay the debts stemming from loss making projects.

As for you, what do you gain by preserving your shareholding proportion of a sinking ship?

i told you so. 1 year ago.

https://www.thestar.com.my/business/business-news/2022/01/12/muhibbahs-rights-issue-exercise-raises-concerns
"we opined that such rights exercise could potentially allude to the inability to collect receivables, which could lead to cash constraints and impairments and the inability to raise additional debt to bridge funding needs,” Kenanga Research said."

How could a right issue resolves a 1 billion debt due in 12 months when its market cap is valued at only 380 million? Unless it raise 3 times of its market cap, then its own management, mac’s family and executives, whose own about 25% of total shareholding needs to come out with 280 million from their personal pockets to avoid their shares’ dilution.

Of course 3 times is an extreme measure assuming no other source of fund. Anyway, when everyone in the management knows the company is going under, convincing them to go deeper with extra personal capital is simply impossible.

Anyone familiar with right issue or any other issue including bond knows that most, if not all, of issues are sold to big investors before they are offered to the public, perhaps left less than 10% of raised capital. In this particular case that Muhibbah’s substantial investors, excluding management, such as KWSP and Tabung Haji have disposed their shareholding since May 2020, so it is unlikely to expect any other big investor to fill the gap, even if the management team members are willing to dilute their own shares by not pouring personal capital into a sinking ship.


SCA like any other airports in the World is suffering from pandemic and will face intense competition from new Chinese-owned Cambodian Airports, so it is unlikely for SCA to pay any dividend to shareholders in coming years.
Moreover, Muhibbah being minority shareholder, even with 30%, in SCA is unable to exert influence on SCA’s dividend policy. It is obvious when it needs to pay 40-50 million interest annually for years because of its heavy debt, but leaving the so called 400 million with SCA for decades for 0 interest. That raised the questions of management’s competency in converting paper profit into cash and plausibility of its revenue recognition, perhaps yet another accounting scandal to be unveiled.

the latest result only further strengthen my prior analysis on its cashflow. the only reason why it is still afloat now is because of loan moratorium, including hire purchase enjoyed by malaysian during pandemic.

Take a look at its 3Q cashflow - interest paid is halved of last year’s comparative, 33m. The interest paid should have been higher than last year’s because of higher debt level, despite reduced rate by BNM.

Eyes are on its survival after the end of moratorium, which ended 30 September.

An interesting fact from 3Q is the 40m shift from Loan payable to Bill payable, when comparing between 2Q and 3Q. That suggests the company has failed to source cheaper fund to repay term loan but rather has “refinanced” due term loan with Bank Acceptance. Most people know that Bank Acceptance is probably the most expensive debt instrument in malaysian corporate financing.

The real question to be asked is why the company did not refinance its term loan to take advantage of current lower interest rate? instead switching to higher rate’s debt? the answer is obvious, because banks are aware of its liquidity. By the way, it has 13 panel banks and not even one could provide longer term and cheaper facility - term loan?

If one has hard time understanding magnitude of its abusive debt usage, try to imagine yourself in such situation:
In 3Q, your 40m house loan is due, you dont have enough money to pay then you take credit card advances from some of 13 credit cards to pay your due house loan. But you still want to shower your wife with birthday party, dividend, for 12m in 4Q because you are afraid wife get mad at you, aka share dropping. That strongly suggests lack of financial discipline.

So where is the cash dividend from SCA, cambodian airport? why the company rather pay expensive interest than request the 200M receivable from SCA ? As I have said, apart from plausibility of recoverability of those paper profits, the company being minority in the JV has no influence on SCA’s dividend policy. How fast cambodian airport recover has no bearing to its imminent debt crisis. After all, the cash return from SCA is long term cash flow to the company, whose booked them under long term asset, not my words.

Of course with the damage brought by pandemic and ongoing new cambodian airport construction by chinese, the release of substantial dividend from SCA is even remotely possible.

There is something worth scrutinisation for what going on with its 60% subsidiary, Favelle Favco (FF), which has been self-sufficient for years, even in this year pandemic, and in 2018 it was so cash-rich to acquire a business for 40m. But in 3Q, it suddenly borrowed 28m in loan. Based on FF past years’ cash flow, the last time FF has net borrowing (proceeds) was in 2009. Throughout 10 years, it has been on net repayment, suggesting it didnt borrow more than it repaid in any given year for 10 years until Q3 2020.

Well, FF investors ought to check if any substantial related party purchase from its holding company in the coming annual report. Perhaps some repackaged junk/shell to sell to FF for channelling money into holding company, Muhibbah. FF should expect to face legal proceeding from FF’s minority shareholder if that happens.

2Qvs 3Q: Debt is raising, cash and order book are depleting, excluded FF, loss is greater. No saviour SCA dividend comes to recuse.
I dont see what is going against what I have analysed in months ago, rather 3Q provided further facts to support so. Of course, except more gamblers come into picture.

If these are not strong enough reasoning of redflags for long term investors, then I can only be amused how blindly a person can be.