At the start of the s-curve
Muhibbah's annualised 1H13 core net profit beat our full-year forecast by 9% but was in line with consensus. The outperformance was due to overestimated tax rates but pretax numbers were in line. The stock now offers attractive upside. The turnaround story remains its appeal.
We raise FY13-15 EPS forecasts on the back of lower tax rates. We cut RNAV/share by 7% as we update for balance sheet items and Favelle Favco's lower market value. Our RNAV target price falls despite an unchanged 30% RNAV discount. Order book recovery is expected across the board. Prospects are also spurred by oil & gas infrastructure. Maintain Outperform. Likely job wins in 2H form re-rating catalysts.
1H job depletion just a blip
The annualised 1H13 core net profit exceeded our full-year forecast by 9% but made up 96% of consensus. The results were above expectations due to overestimated tax rates. At the pretax profit level, the numbers were within estimates. The depletion of infra/construction jobs in 1H13 was expected given the lack of job wins YTD. The 24.1% yoy decline in 1H group revenue was offset by recovery in ship orders (+54% yoy). Earnings from new crane orders should flow though in 2H, offsetting weak margins from infra. The absence of dividends was within expectations.
Turnaround prospects The outlook remains positive for infrastructure given the limited supply of marine/port contractors locally. The recently-awarded Petronas fabrication licences raise its chances of securing oil & gas-related works. Despite timing risks, infra works tenders at Rapid are ongoing. Muhibbah has prequalified for three packages worth RM1bn each.
Stock offers value
Upside is attractive; the stock is down 17% due to the recent market sell-down. Its fundamentals have not changed, with order book recovery across all segments boosted by domestic oil & gas E&P. This does not include potential MRT wins and marine/port-related jobs. The group did not succeed in its airport concession tender in Myanmar - a slight disappointment but poses no downside to EPS and RNAV.
Publish date: 02/09/13