Muhibbah Engineering (M) Bhd
(June 1, RM2.42)
Maintain buy with a lower target price (TP) of RM2.73: Muhibbah Enginnering’s first quarter ended March (1QFY15) profit after tax and minority interests (Patami) jumped by 16% year-on-year (y-o-y) and 15% quarter-on-quarter (q-o-q) to RM23.3 million.
The results were within our and consensus estimates, making up 23% and 24% of full-year earnings forecasts respectively.
Earnings were supported by cranes and concession assets. While its revenue of RM363.2 million was lower by 8% y-o-y and 20% q-o-q in 1Q, growth in its earnings turned out stronger contributed by higher revenue from Favelle Favco cranes business and improvement in its operational efficiencies.
Additionally, for its associate Cambodia airports’ higher passenger movement continues to be seen, contributing to the group’s current quarter’s earnings. This is in line with our expectation.
We make no changes to our FY15 earnings forecast at this juncture. However, we have fine-tuned our FY16 earnings by -1.5% due to the lower purchase orders received for cranes this year.
We maintain our “buy” stance with a revised TP of RM2.73 based on FY15 sum-of-parts (SoP) valuation. The revision was due to adjustment in our in-house Favelle Favco’s price-earnings ratio (PER) valuation to eight times, which reflects its average monthly rolling PER for the past three years.
Apart from that, we reduce our discount applied to Muhibbah’s SoP as recovery in year-to-date average Brent crude oil price of US$59 (RM217.10) is approaching our in-house estimates of between US$60 and US$70 a barrel.
We expect the group to meet our remaining RM614 million new construction jobs replenishment target hence bringing the full-year new construction jobs to RM800million in FY15.
This is expected to be derived from onshore oil and gas-related jobs worth between RM250 million and 400 million, and RM256 million Part B of Westport Container Terminal 8 wharf, in the next three months. — MIDF Research, June 1
This article first appeared in The Edge Financial Daily, on June 2, 2015.