Muhibbah, Favelle Favco shares slip on APH project

Kuala Lumpur: Muhibbah Engineering Bhd has been rocked by reports that it will be forced to write down as much as RM300 million due to its involvement in the Asia Petroleum Hub (APH) project in Johor.


The stock yesterday fell 38 sen sen to RM1.52 a share, while its subsidiary, Favelle Favco Bhd, also slumped on the negative buzz surrounding its parent. Favelle Favco shares shed 19 sen to RM1.61 a share.

CIMB Research, in an early morning report yesterday, said that such a writedown will mean that Muhibbah will suffer a loss in the current financial year.

Muhibbah was awarded a contract worth RM820 million to undertake marine piling and jetty works for APH. However, escalation of cost due to APH funding issues led to the stalling of payments due to Muhibbah.

"The unpaid amount has accumulated to RM300 million, which does not include RM187 million worth of outstanding works as at end-2010.

"Muhibbah has not made any provisions for the project as the project is still deemed viable," CIMB analyst Sharizan Rosely wrote in the report.

"The worst-case scenario for Muhibbah is a writedown of the RM300 million due from APH, which would push Muhibbah into losses for 2011," Sharizan added.

On Wednesday, the Singapore Business Times reported that APH, the developer and operator of the APH oil terminal in Johor, has been placed under receivership.

The company had in 2006 secured a RM1.4 billion three-year bridging loan but has been looking for RM2 billion in additional funding following the escalation of the project cost.

APH's main shareholders are KIC Sdn Bhd with a 40 per cent stake, PTP Sdn Bhd with a 35 per cent stake and Trek Perintis Sdn Bhd with a 15 per cent stake.

The CIMB report, citing sources, said that as at end-2010, APH's cumulative capital expenditure amounted to slightly over RM1.4 billion while the physical completion of the project was about 64 per cent.

It is understood that APH has been put under receivership mainly because it could not come up with other investors to help fund the development and repay its debt.

It is further understood that APH has been placed under a receiver, namely the accounting firm BBDO-Binder.

Meanwhile, Kenanga Research said the potential losses could lead the company into PN17 status as the severe losses would erode its shareholders fund by more than 75 per cent. "We believe this is less likely to be the case as the company may not need to write down the full amount of RM370 million," the research house said.

According to Kenanga, assuming the full provision for APH is at RM370 million, this will bring down its forecast for Muhibbah from a net profit of RM64 million to net loss of RM306 million for the financial year ending December 31 2011.