Thursday 28 Mar 2024
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Muhibbah Engineering (M) Bhd
(Sept 4, RM1.93)
We reiterate our outperform call on Muhibbah Engineering (M) Bhd with an unchanged target price (TP) of RM2.72:
Our sum-of-parts-based TP of RM2.72 implies financial year 2016 estimate (FY16E) price earnings ratio (PER) of 12.5 times (0.5 times standard deviation, in line with our target small-mid-cap construction peers’ range of 9 times to 14 times.

Muhibbah announced that it along with consortium partner VA Tech Wabag Ltd has secured a contract worth RM949.6 million from PRPC Utilities and Facilities Sdn Bhd for the design competition for refeed and engineering, procurement, construction and commissioning of the effluent treatment plant for the refinery and petrochemical integrated development (Rapid) project in Pengerang, Johor.

This contract is scheduled to commence in the third quarter of 2015 (3Q15) and slated for completion at end-2018.

We are positive on the contract award as this is Muhibbah’s third job and is also the largest job win from Rapid, amounting to RM949.6 million. 

To recap, Muhibbah secured two Rapid-related jobs amounting to about RM274 million for FY15, while its total order book replenishment amounted to RM542.9 million prior to this contract award. 

Assuming Muhibbah’s job scope in this particular contract at 30% of its entire contract value of RM949.6 million, Muhibbah’s share is RM282 million, bringing year-to-date order book replenishment to RM826 million, which is still in line with our FY15 estimate of RM800 million.

Currently, its outstanding order book stands at RM2.4 billion providing the group at least two years of visibility, and we believe it will be busy executing ongoing projects at Rapid.

Risks to our call include failure in meeting our new contracts’ assumption, delays in construction projects and higher-than-expected input costs. — Kenanga Research, Sept 4

Muhibbah_ded_070915_theedgemarkets

This article first appeared in digitaledge Daily, on September 7, 2015.

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