Muhibbah set to nab another round of local, Qatar job wins
KUCHING: Starting off the year strong with a 13.7 per cent rise in share price, Muhibbah Engineering Bhd (Muhibbah) looks set to nab another round of local and Qatar job wins in financial year 2018 (FY18).
According to MIDF Amanah Investment Bank Bhd ( MIDF Research), Muhibbah is expected to secure RM700 million worth of jobs with Qatar and Malaysian infrastructure projects.
“Despite the trade blockade by the Saudi-led coalition to Qatar, project wins from the latter is not entire muted as in October 2017, Muhibbah had won another award of RM59.1 million from their joint- venture Muhibbah Engineering Middle East LLC of which the group has a 49 per cent equity interest in,” said the research arm.
While the award in October 2017 was much lower than the group’s previous award of RM438.1 million in January, MIDF Research guided that the balancing factor would be of the profit before tax (PBT) contribution of 30.2 per cent quarterly for the past two years from its airport concessions in Cambodia.
Besides that, MIDF Research also pointed out that Muhibbah had far exceeded expectations in FY17 as the group managed to secure RM1.6 billion worth of job wins – 62.6 per cent above the research arm’s award value estimates of RM600 million.
“It’s awarded contract in Malaysia amounted to 66.6 per cent of its FY17 job wins. This indicated quality orderbook whereby risks of translation and regional politics are reduced.
“Justifiably, its flitting share price scores a strong fundamental overtime where in total its orderbook amounted to RM2.1 billion,” said the research arm.
Having said that, MIDF Research expects that the group will be experiencing another financial year of smooth sailing in earnings despite the grim outlook for its cranes segment via Favelle Favco Bhd (FFB).
Even then, the research arm opines that FFB’s outlook is not entire depressing as earnings have started to grow in the fourth quarter of 2016 (4Q16).
“(This) reflects a better risk-reward profile on the back of a +60 per cent operation margin, (and) FFN would stand a better chance to survive the competitive business environment of crane manufacturers due to its operational size, customisation expertise and presence in South East Asia and the Middle East,” explained the research arm.
All in, MIDF Research is reiterating its ‘buy’ call on Muhibbah’s stock with an adjusted higher target price of RM3.60 per share.
“Muhibbah remains as one of our top pick for small-cap construction companies.
“Its shares are trading at an undemanding price earnings ratio (PER) of 12.1 fold below the KLCI average of 17.0 fold by 5.5 points and its peers in KL Construction Index of 23.0 fold by 11.5 points,” justified the research arm.