KUALA LUMPUR (June 23): While maintaining its “buy” call on Muhibbah Engineering (M) Bhd, MIDF Research has cut its target price for the construction counter to RM1.35 from RM2.08 previously.
In a note to investors, MIDF said it had cut its earnings forecasts for Muhibbah’s financial year ending Dec 31, 2020 (FY20) and FY21 by 39.1% and 35.2% respectively due to its notable underperformance for the first quarter ended March 31, 2020 (1QFY20).
The research house believed that the fallout from Covid-19 will continue to negatively impact the company's airport concessions in Cambodia during the next 12 to 18 months.
On the 1QFY20 results, MIDF said Muhibbah's core net profit of RM5.1 million came in below its own and the consensus FY20 estimates – accounting for only 6% and 5% respectively.
For the quarter, earnings contracted sharply by 84.6% from a year ago due to a a lower profit contribution from the airport concession division battered by Covid-19.
While revenue increased by 22.4% to RM333.5 million for 1QFY20, from RM272.4 million a year ago, it shrank on a quarterly basis by 29.4% following the suspension of works imposed during the movement control order (MCO) period which resulted in the infrastructure and crane division being negatively impacted.
“For 1QFY20, the infrastructure construction segment made up 58.45% of total revenue but only 14.9% of profit before tax (PBT). For this sector, the group booked a revenue of RM251.8 million (-7.1% year-on-year [y-o-y]) and a PBT of RM3.3 million (-72.1% y-o-y).
“It is worth noting that Muhibbah has completed the catering facility at the New Doha International Airport in Qatar. On top of that, there are a few ongoing projects in Qatar, namely: i) construction of roads and infrastructure works in Manateq’s Economic Zone; ii) an additional work order associated with construction of roads and infrastructure works in the Um Alhoul Economic Zone (QEZ-3); and iii) design, construction and erection of synncrolifts and travel lifts with ancillaries and all associated works,” MIDF observed.
As of June 17, 2020, Muhibbah’s total outstanding secured order book stood at RM1.3 billion – with the construction division contributing RM772 million and the crane division yielding RM521 million.
As of 9.36am, shares in Muhibbah were down 1.57% or 1.5 sen at 94 sen, valuing the stock at some RM456.12 million.