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
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.
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.
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.
Publish date: 02/09/13