Muhibbah’s positives priced in

by **Cals** Fri 13 Jun 2014, 02:36

Business & Markets 2014

Written by AllianceDBS Research

Thursday, 12 June 2014 10:17

Muhibbah Engineering (M) Bhd
(June 11, RM3.07)
Downgrade to hold with target price of RM3.01: Muhibbah’s order book has depleted to RM1.9 billion, implying a thin cover of one times financial year 2013 (FY13) revenue. Job wins have been slow year-to-date with RM91 million for construction, RM186 million for cranes, and nil for its shipyard. Its initial target of RM1 billion new construction jobs could be an uphill task this year, so it has issued a lower guidance of RM500 million to RM600 million.

Management feels the slow job wins are merely a timing issue and maintains a positive outlook with RM7 billion in tenders. Half of the bids are for jobs at the refinery and petrochemical integrated development (Rapid) where its Petroliam Nasional Bhd licence would be an advantage. There is also a good chance for Muhibbah to participate in the third container terminal in Port Klang that would reportedly cost RM1.5 billion. Its shipyard could see RM200 million newbuild orders by year-end.

We cut FY14/FY15 earnings by 33% after factoring in the slow order book replenishment. Earnings for FY14 are now projected to decline by 13% due to the timing gap between running down its existing order book and expected new job wins.

Our target price is unchanged at RM3.20, pegged to 15 times FY15 forecast price-earnings ratio (previously used sum-of-parts metric), but we downgrade the stock to “hold” from “buy” because the share price had risen recently. Positive news flow on Rapid may be dampened by expectations of weaker earnings in subsequent quarters. — AllianceDBS Research, June 11

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This article first appeared in The Edge Financial Daily, on June 12, 2014.[/size]