MUHIBAH (5703) : Muhibbah Engineering - Still good on the port side
Target RM3.40 (Stock Rating: ADD)
Amidst the negativity surrounding the fall in crude oil price, Muhibbah managed to throw out good news, announcing yesterday that it had clinched a wharf expansion contract from Westports. This supports management's guidance that the group has been actively tendering for port/marine infra jobs, which is its niche area. All eyes will next be on potential contract wins in Rapid and Pengerang, two areas that will not be affected by Petronas’s potential capex cuts as they have received the final investment decision (FID). We maintain our EPS forecasts but reduce our target price, still pegged to a 20% RNAV discount, as we update for Favelle's lower market cap. The stock remains oversold. Maintain Add. Muhibbah is our small/mid-cap pick.
What Happened
Muhibbah has announced that it has won a RM135m job from Westports for the expansion of the Terminal 8 wharf and related works. This represents package A, with an option by Westports to evaluate and award package B, valued at RM256m, within 6 months.
What We Think
This news is not overly surprising given management's guidance that it has been actively tendering for domestic port/marine works since year 2014. We view this as positive as it represents the group’s second port job this year (see Figure 1 overleaf), bringing the total infra jobs secured YTD to RM513m, close to our full-year expectation of RM600m. We leave our EPS forecasts unchanged but estimate that package A will contribute RM12m p.a., based on a 9% pretax margin assumption.
What You Should Do
Accumulate as the stock remains oversold. Clarification by Petronas that projects that have received FID will be spared from potential capex reductions is good news for Muhibbah. The group is targeting c.RM1bn worth of jobs in Rapid and has a fairly good chance, in our view, of securing the c.RM1bn offshore jetty project in a separate area for the Pengerang regasification plant, which we have not imputed into our new job assumption. Prospects could surprise on the upside if Muhibbah succeeds in landing higher-value oil & gas infra packages beyond Rapid. The job flow outlook remains supported by other domestic jobs, which could include other port/marine works and new highways, particularly the West Coast Expressway (WCE). Muhibbah will also pursue MRT 2 packages, which are likely to be worth between RM700m and RM1bn each.
Source: CIMB Daybreak - 04 December 2014
Target RM3.40 (Stock Rating: ADD)
Amidst the negativity surrounding the fall in crude oil price, Muhibbah managed to throw out good news, announcing yesterday that it had clinched a wharf expansion contract from Westports. This supports management's guidance that the group has been actively tendering for port/marine infra jobs, which is its niche area. All eyes will next be on potential contract wins in Rapid and Pengerang, two areas that will not be affected by Petronas’s potential capex cuts as they have received the final investment decision (FID). We maintain our EPS forecasts but reduce our target price, still pegged to a 20% RNAV discount, as we update for Favelle's lower market cap. The stock remains oversold. Maintain Add. Muhibbah is our small/mid-cap pick.
What Happened
Muhibbah has announced that it has won a RM135m job from Westports for the expansion of the Terminal 8 wharf and related works. This represents package A, with an option by Westports to evaluate and award package B, valued at RM256m, within 6 months.
What We Think
This news is not overly surprising given management's guidance that it has been actively tendering for domestic port/marine works since year 2014. We view this as positive as it represents the group’s second port job this year (see Figure 1 overleaf), bringing the total infra jobs secured YTD to RM513m, close to our full-year expectation of RM600m. We leave our EPS forecasts unchanged but estimate that package A will contribute RM12m p.a., based on a 9% pretax margin assumption.
What You Should Do
Accumulate as the stock remains oversold. Clarification by Petronas that projects that have received FID will be spared from potential capex reductions is good news for Muhibbah. The group is targeting c.RM1bn worth of jobs in Rapid and has a fairly good chance, in our view, of securing the c.RM1bn offshore jetty project in a separate area for the Pengerang regasification plant, which we have not imputed into our new job assumption. Prospects could surprise on the upside if Muhibbah succeeds in landing higher-value oil & gas infra packages beyond Rapid. The job flow outlook remains supported by other domestic jobs, which could include other port/marine works and new highways, particularly the West Coast Expressway (WCE). Muhibbah will also pursue MRT 2 packages, which are likely to be worth between RM700m and RM1bn each.
Source: CIMB Daybreak - 04 December 2014
