Tuesday, September 3, 2013

Muhibbah Engineering : Stronger construction earnings (DBSV)

Muhibbah Engineering
BUY RM2.18
KLCI : 1,727.58
Price Target : 12-Month RM 3.10
Stronger construction earnings

2Q13 net profit of RM21m was in line; y-o-y earnings growth largely supported by infrastructure construction
Expect 2H13 earnings to be driven by higher progress billings for existing orderbook
Maintain BUY with RM3.10 TP

Highlights
2Q13 results in line. Net profit grew 21.5% y-o-y to RM20.7m although revenue fell 35% to RM406.6m, taking 1H13 profit to RM40.5m (+21% y-o-y) or 42% of our full year forecast. We expect 2H13 to be stronger, driven by higher progress billings of its existing orderbook and seasonally stronger concession earnings from Cambodia airports.


Stronger y-o-y earnings in the quarter were largely driven by the infrastructure construction segment, which PBT more-thandoubled to RM8.9m. Also, shipyard and concession segments’ PBT grew 64% and 17% to RM9m and RM7m, respectively.

However, crane segment (Favelle Favco) PBT fell 26% to RM8.8m on the back of weaker sales of RM166m (-19% y-o-y). Also, Favelle Favco had a lower contribution to the Group due to higher effective tax rate from expiry of pioneer status tax exemption incentive.

Overall, 2Q13 group EBIT and PBT margins improved to 6.7% (vs. 2Q12: 4.3%) and 7.5% (vs. 2Q12: 4.6%), respectively. These were driven by improved profitability at the infrastructure construction and shipyard segments.

Our View
Stronger earnings ahead. The Group could record stronger earnings ahead, supported by: i) higher inflow of O&G-related contracts for construction, cranes and shipyard segments; ii)
securing more civil construction jobs post-May election; and iii) higher passenger arrivals at Cambodia airports, which would translate into higher concession earnings.

Recommendation
Maintain BUY, RM3.10 TP. Our TP is based on SOP-valuation. We like Muhibbah because it is attractively valued at 6-7x FY14- 15 PE and offers favourable ROE (22%), and the Group’s earnings sources are diversified. Muhibbah is also the cheapest O&G-related stock with a Petronas license.



Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 02/09/13

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