MUHIBAH (5703) - Muhibbah Engineering - Smaller wins for infra recovery
Target RM2.75 (Stock Rating: ADD)
New information regarding job prospects suggests a slightly muted period for large-scale contract tenders in the months ahead. Muhibbah forgoing the RM1bn Pengerang jetty project due to pricing issues was a negative surprise but this is mitigated by its maiden contract win in Rapid today, and prospects for other domestic infra/port jobs, potentially resulting in contract flows similar to 2014’s. We cut FY14-16 EPS forecasts to reflect our more conservative assumptions while the lower target price is the result of a wider RNAV discount of 30% (20% previously) as smaller (but still lucrative) contract wins are more likely this year. The stock remains oversold and still offers attractive upside. Maintain Add. Muhibbah is our small/mid-cap pick.
What Happened
We touched base with management regarding the group's outlook this year. 1) Chances to win domestic infra tenders, including in the marine and port-related segments, are looking good 2) However, we were negatively surprised that management is no longer keen to pursue the much-talked-about RM1bn jetty job for the regasification terminal in Pengerang, due largely to stiffer-than-expected competition from foreign contenders. 3) On the brighter side, more subcontract works packages for the refinery scope in Rapid should enter the awards stage following Muhibbah's maiden RM116m win today.
What We Think
We conclude that our assumption of RM1bn worth of new jobs for the group's infra division for 2015 no longer holds as it was largely based on a success rate that includes the group winning the chunky marine infra project from Pengerang. We cut our new wins assumption by 40% to RM600m, which also reflects more job flows from Rapid. Missing out on the Pengerang jetty project is not a major disappointment as the new job target still implies a 20% success rate against an estimated RM3bn of total domestic jobs in tender. See overleaf for the company’s order wins strategy and track record for in 2014.
What You Should Do
Accumulate. The stock remains oversold, in our view, as the steep 18% fall in share price in 2014 has more than priced in the negatives from the collapsed oil price. It is trading at an undemanding 7x FY15 P/E and 8x FY16 P/E. Job wins are likely short- to medium-term catalysts. A sustained recovery in its share price could also be driven by an improvement in market sentiment triggered by a rebound in global oil prices.
Source: CIMB Daybreak - 05 February 2015
Target RM2.75 (Stock Rating: ADD)
New information regarding job prospects suggests a slightly muted period for large-scale contract tenders in the months ahead. Muhibbah forgoing the RM1bn Pengerang jetty project due to pricing issues was a negative surprise but this is mitigated by its maiden contract win in Rapid today, and prospects for other domestic infra/port jobs, potentially resulting in contract flows similar to 2014’s. We cut FY14-16 EPS forecasts to reflect our more conservative assumptions while the lower target price is the result of a wider RNAV discount of 30% (20% previously) as smaller (but still lucrative) contract wins are more likely this year. The stock remains oversold and still offers attractive upside. Maintain Add. Muhibbah is our small/mid-cap pick.
What Happened
We touched base with management regarding the group's outlook this year. 1) Chances to win domestic infra tenders, including in the marine and port-related segments, are looking good 2) However, we were negatively surprised that management is no longer keen to pursue the much-talked-about RM1bn jetty job for the regasification terminal in Pengerang, due largely to stiffer-than-expected competition from foreign contenders. 3) On the brighter side, more subcontract works packages for the refinery scope in Rapid should enter the awards stage following Muhibbah's maiden RM116m win today.
What We Think
We conclude that our assumption of RM1bn worth of new jobs for the group's infra division for 2015 no longer holds as it was largely based on a success rate that includes the group winning the chunky marine infra project from Pengerang. We cut our new wins assumption by 40% to RM600m, which also reflects more job flows from Rapid. Missing out on the Pengerang jetty project is not a major disappointment as the new job target still implies a 20% success rate against an estimated RM3bn of total domestic jobs in tender. See overleaf for the company’s order wins strategy and track record for in 2014.
What You Should Do
Accumulate. The stock remains oversold, in our view, as the steep 18% fall in share price in 2014 has more than priced in the negatives from the collapsed oil price. It is trading at an undemanding 7x FY15 P/E and 8x FY16 P/E. Job wins are likely short- to medium-term catalysts. A sustained recovery in its share price could also be driven by an improvement in market sentiment triggered by a rebound in global oil prices.
Source: CIMB Daybreak - 05 February 2015
