Muhibbah Engineering -
The mojo is oil & gas infra
At our Malaysia Corporate Day yesterday, management reiterated that the group's prospects for 2014 will be driven by oil & gas and port/marine-related infra contracts but the positive surprise was that it is also vying for an oil & gas infra job in Cambodia. Turnaround prospects look more exciting domestically, backed by Petronas's RM60bn capex p.a., which should benefit the group's cranes and shipyard divisions. EPS is unchanged but there is upside potential. Our target price remains pegged to a 30% RNAV discount. Potentially strong order flows are the stock's main appeal, with likely job wins in 1H14 as medium-term catalysts. Maintain Add.
Optimism during our conference. Muhibbah participated in our Malaysia Corporate day yesterday. Group CFO Shirleen Lee led presentations during seven small group sessions for over 30 fund managers. Key takeaways were: 1) Its outstanding order book stands at RM2.1bn, including Favelle Favco's (cranes) all-time high of RM1bn. Shipyard orders are set to surpass the high in 2009, driven by the pick-up in domestic chartering contracts for oil & gas. 2) The group is vying for an oil & gas infra project in Cambodia, with a potential share of works worth RM300m-400m. 3) The group has a good chance of participating in the construction of refinery and regasification plants in Sabah and Johor if the projects are implemented. 4) Opportunities in Petronas's Rapid project in Iskandar are intact. Decisions on tenders are likely to pick up from Mar 14 onwards while RM300m-400m worth of maiden steel fabrication contracts arising from the fabrication licence from Petronas are likely to materialise this year. 5) The group will tender for the subcontract packages of the West Coast Expressway (WCE).
What We Think
Turnaround in order flows in 2014. We were encouraged by management's optimism. The positive surprise was the potential oil & gas infra project in Cambodia. The group has a good chance given its track record domestically and overseas. Another pleasant takeaway was that the group plans to tender for the WCE subcontract works. Overall, oil & gas and port/marine-related prospects are shaping up to be Muhibbah's main appeal.
What You Should Do
Accumulate. The stock continues to offer the most attractive prospects among our smaller-cap contractors.
Publish date: 09/01/14