MUHIBAH (5703) - Muhibbah Engineering - US$ strength boost for cranes
Target RM3.11 (Stock Rating: ADD)
Muhibbah's FY14 core net profit was in line, at 96% of our forecast and 99% of consensus, driven by the 80% growth in the crane segment’s (Favelle Favco) earnings due to the stronger US$. Cambodian airport concession (26% stake) earnings were notably strong as well, a potential signal of steadier earnings support in FY15. The infra division’s laggard earnings were expected and it should catch up in FY15, with recovering wins. We maintain our FY15-16 EPS forecasts but raise our target price as we update for the surge in cash, still based on a 30% discount to RNAV. Oil & gas infra order wins have been building up, which imply potential re-rating catalysts in the coming months. Maintain Add. Muhibbah is our preferred small/mid-cap pick.
FY14 results within expectations
FY14 core net profit made up 96% of our forecast and 99% of consensus. The performance was in line, anchored by the crane segment's (Favelle Favco) pretax profit growth of 80% yoy due to the stronger US$ (exports: 47% of crane revenue) and all-time high order book. The concession segment’s FY14 earnings were also substantially stronger. The infra division closed the year with contraction in both revenue and pretax profit, although this was expected due to the recognition timing of new orders. We expect the deceleration in infra earnings in FY14 to reverse in FY15. The 4 sen full-year DPS was in line.
Infra order wins building up
The group, via its 70% stake in JGC Corporation-PT JGC Indonesia-Muhibbah consortium, recently won a RM116m contract for the upgrade and extension of the LNG regasification terminal in Melaka. This represents the second oil & gas and marine-related win YTD, bringing total awards for this recovering niche segment to RM756m since last year. The group’s outstanding order book stood at RM1.9bn at end-FY14 (including cranes and shipbuilding). We continue to expect upside support from more infra wins this year, potentially resulting in similar contract flows to 2014. Our total infra award assumptions of RM600m for FY14 (RM197m secured YTD) and RM1bn p.a. for FY15-17 are retained.
Steady re-rating in the coming months?
The key potential catalysts in the coming months include improved investor sentiment from the stabilisation of and likely recovery in global oil prices in 2H15. The stock trades at undemanding CY15-16 P/Es of 9-10x.
Source: CIMB Daybreak - 02 March 2015
Target RM3.11 (Stock Rating: ADD)
Muhibbah's FY14 core net profit was in line, at 96% of our forecast and 99% of consensus, driven by the 80% growth in the crane segment’s (Favelle Favco) earnings due to the stronger US$. Cambodian airport concession (26% stake) earnings were notably strong as well, a potential signal of steadier earnings support in FY15. The infra division’s laggard earnings were expected and it should catch up in FY15, with recovering wins. We maintain our FY15-16 EPS forecasts but raise our target price as we update for the surge in cash, still based on a 30% discount to RNAV. Oil & gas infra order wins have been building up, which imply potential re-rating catalysts in the coming months. Maintain Add. Muhibbah is our preferred small/mid-cap pick.
FY14 results within expectations
FY14 core net profit made up 96% of our forecast and 99% of consensus. The performance was in line, anchored by the crane segment's (Favelle Favco) pretax profit growth of 80% yoy due to the stronger US$ (exports: 47% of crane revenue) and all-time high order book. The concession segment’s FY14 earnings were also substantially stronger. The infra division closed the year with contraction in both revenue and pretax profit, although this was expected due to the recognition timing of new orders. We expect the deceleration in infra earnings in FY14 to reverse in FY15. The 4 sen full-year DPS was in line.
Infra order wins building up
The group, via its 70% stake in JGC Corporation-PT JGC Indonesia-Muhibbah consortium, recently won a RM116m contract for the upgrade and extension of the LNG regasification terminal in Melaka. This represents the second oil & gas and marine-related win YTD, bringing total awards for this recovering niche segment to RM756m since last year. The group’s outstanding order book stood at RM1.9bn at end-FY14 (including cranes and shipbuilding). We continue to expect upside support from more infra wins this year, potentially resulting in similar contract flows to 2014. Our total infra award assumptions of RM600m for FY14 (RM197m secured YTD) and RM1bn p.a. for FY15-17 are retained.
Steady re-rating in the coming months?
The key potential catalysts in the coming months include improved investor sentiment from the stabilisation of and likely recovery in global oil prices in 2H15. The stock trades at undemanding CY15-16 P/Es of 9-10x.
Source: CIMB Daybreak - 02 March 2015
