Muhibbah short-term challenges seen to persist

PETALING JAYA: Muhibbah Engineering Bhd, which slipped into a net loss of Rm1.4mil in the third quarter ended Sept 30, 2022 (3Q22), will likely continue to face short-term challenges.

Two research firms in post-earnings updates have lowered their estimates for the group, which provides oil and gas, marine, infrastructure, civil and structural engineering contract works.

CGS-CIMB Research slashed its financial year 2022 (FY22) to FY24 forecast earnings per share (EPS) for Muhibbah by 32% to 60% as it imputed weaker infra and crane billings and lower earnings before interest, taxes, depreciation and amortisation (Ebitda) margins to reflect the high operating costs.

It also has a reduced rating given the sustained earnings risk and weak job flow visibility.

MIDF Research revised Muhibbah’s core earnings estimates for FY22 lower by 50% to Rm15.3mil and FY24 by 29% to Rm33.6mil, to account for the weaker than expected margins. As for its stock rating, it maintains a “buy” call on the group.

“There is undoubtedly no excitement in terms of Muhibbah’s performance due to its weaker margins in recent quarters, but we expect this to improve gradually in coming quarters with the declining trend of building material prices.

“We believe FY23 would be a good time for Muhibbah to capture the potential increase in job flows when the infrastructure projects start rolling in, which would benefit both its construction and cranes divisions,” said MIDF Research.

The research house noted that Muhibbah’s share price has been hammered by roughly half year-to-date due to its weaker-than-expected performance. However, MIDF Research believes there is still a slight upside.

According to MIDF Research, Muhibbah is seeing improved quarterly revenue, with 3Q22’s revenue rising for the second consecutive quarter by close to a quarter on the back of stronger contributions from infrastructure construction and ship repair services.

This helped cushion the lower revenue from its crane division.

Muhibbah’s current outstanding order book is at Rm1.1bil and provides earnings visibility up to 1Q24, according to MIDF Research.

“About 42%, or Rm459mil, of this comes from infrastructure construction jobs, while the remaining 58% come from crane orders, and we believe there is still much room for securing jobs as the outstanding order book has yet to return to pre-pandemic levels, which were usually Rm1.5bil to Rm2bil,” MIDF Research added.