MUHIBBAH ENGINEERING (M) BHD

Target Price: RM3.60

MUHIBBAH Engineeting (M) Bhd started the year with its share price advancing more than 13% for the first week of 2018.

Last year, Muhibbah secured RM1.6bil worth of job wins, which was 62.6% above MIDF Research’s estimates of RM600mil.

MIDF pointed out that Muhibbah’s awarded contracts in Malaysia amounted to 66.6% of its FY17 job wins, which indicated a quality order book. Its order book amounted to RM2.1bil.

For this year, MIDF is expecting Muhibbah to secure RM700mil worth of jobs in Qatar and Malaysia for infrastructure projects.

Despite the trade blockade by Saudi-led coalition to Qatar, project wins are not entirely muted as in October 2017 Muhibbah won another project in Qatar worth RM59.1mil (49% joint venture), on top of its previous award of RM438.1mil.

Earnings-wise, MIDF said it expects 2018 would be another smooth sailing year for Muhibbah despite the grim outlook for its cranes segment via Favelle Favco.

However, it reckons that Favelle Favco would stand a better chance to survive due to its operational size, customisation expertise and presence in South-East Asia and the Middle East.

Noticeably, earnings started to grow in Q4, 2016 illustrating the accretion of projects that reflected a better risk/reward profile on the back of 6% operating margin.

MIDF has maintained its earnings assumptions as Muhibbah is backed by total order- book of RM2.1bil with an average backlog duration of 22 months, or 1.7 times construction revenue cover.

The research house reiterated its buy call on Muhibbah with an adjusted target price of RM3.60 per share on the basis of its sum-ofparts methodology.