EPS (sen) (22.9) 17.4 P/E (x) NM 12.5 DPS (sen) NTA/share (RM) Issued capital (mil) week price range (RM)

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1 2QFY13 Results Update 2 September 2013 Muhibbah Engineering (M) Bhd Results above expectations on annualized basis New Petronas licence opens up O&G opportunities Order-book of RM2b to underpin earnings Maintain BUY Share price RM2.18 Market capitalization RM890 million Board Main BUY Key stock statistics FY Dec12 FY Dec13E EPS (sen) (22.9) 17.4 P/E (x) NM 12.5 DPS (sen) NTA/share (RM) Issued capital (mil) week price range (RM) Major shareholders (%) Mac Ngan Boon 23.4% Lembaga Tabung Haji 9.9% EPF 7.4% Share Price Chart Indices FBM Emas Syariah, Sector Construction Stock code 5703 By The Research Team

2 2QFY13 Results Highlights Year end Dec (RM mil) 6m-FY13 6m-FY12 % chg Turnover ,044.5 (24.1) Pre-tax profit Tax (12.2) (5.7) Minority interests (7.7) (14.3) (45.9) Net profit EPS (sen) Pre-tax profit margin (%) Net profit margin (%) Muhibbah Engineering s results for 2QFY13 and the first half of 2013 were ahead of our forecasts on an annualized basis. The company turned in another strong quarter with results that mirrored 1QFY13. For 2QFY13, Muhibbah reported pre-tax profit of RM30.5 million, bringing first half pre-tax profit to RM60.4 million. This was 12.9% higher compared with RM53.5 million in 1HFY12. Net profit in 2QFY13 totaled RM20.7 million, better than 1QFY13 s RM17.1 million. This brings net profit for 1HFY13 to RM40.5 million, up 20.7% compared with RM33.6 million in 1HFY12. On an annualized basis, these numbers are 14% above our full year net profit forecast of RM70.8 million. The growth in profitability was achieved despite a fairly substantial drop in revenue, which resulted in pre-tax profit margins rising from 5.1% in 1HFY12 to 7.6% in 1HFY13. Revenue for 1HFY13 declined 24.1% y-y to RM792.8 million from RM1.04 billion a year earlier, due to the completion of several large projects, notably the South Klang Valley Expressway. We believe many of the civil construction jobs yielded lower margins, as compared to oil and gas related jobs which Muhibbah is trying to focus its niche on. For its main divisions, the construction, shipyard and concession divisions achieved better results year-on-year, while the crane division s net profit contribution was lower due to the expiry of tax exemptions in mid Favelle Favco, its crane unit, had reported marginally flat pre-tax profit of RM29.5 million in 1HFY13 versus RM30.7 million in 1HFY12. However, its net profit for the six-month period fell from RM30 million to RM21.6 million due to the tax effect. Share of associates increased from RM18.36 million to RM22.96 million, reflecting continued growth in its concession business, especially the Cambodian airports. 2

3 As at 22 Aug 2013, Muhibbah s outstanding order-book totaled RM2.02 billion, down from RM2.3 billion on 3 July This comprises RM1.05 billion from infrastructure construction, RM832 million from cranes and RM136 million from shipyard. Outlook and recommendation We are maintaining our forecasts and BUY recommendation. Muhibbah Engineering is poised to make a strong comeback, after putting legacy issues relating to the stalled Asia Petroleum Hub (APH) project behind it, while the newly awarded Petronas licence gives it the clout to bid for major contracts from the national oil company. In June 2013, the company was awarded a License by Petronas as an Approved Supplier for the Category of Offshore Facilities Construction Major Onshore Fabrication. The new licence will enable Muhibbah to transform itself more into an integrated oil & gas player. It will qualify the company for Petronas RAPID (Refinery and Petrochemical Integrated Development) contracts. The ability to venture more into more oil & gas projects will not only cement Muhibbah s growing presence in the industry, but also boost margins and its order-book. We expect civil constructions jobs to become more competitive in view of the government s upcoming efforts to rein in fiscal spending. We like Muhibbah s well-diversified income base, with earnings from infrastructure construction, cranes manufacturing, ship-building, and concessions from its airports in Cambodia and road maintenance in Malaysia. The group has grown into a global player, with businesses and projects in Asia, the Middle East, the US, Europe and Australia. Muhibbah s share price has seen some volatility, following the sell-off in emerging markets and the stock s recent favour among foreign funds. Nonetheless, we note that JP Morgan Chase & Co, which recently emerged as a substantial shareholder, has in fact increased its stake in Muhibbah during the market sell-off. It last acquired 600,000 shares on 27 Aug 2013, bringing its stake to 5.9%. We expect Muhibbah to post net profit of RM70.8 million in 2013 and RM92 million in 2014, with EPS of 17.4 sen and 22.6 sen, respectively. At RM2.18, the stock s P/E valuations of 12.5 times for 2013 and 9.7 times for 2014 are attractive, especially relative to its growth prospects, as well as proxies to the oil & gas and construction sectors. 3

4 Profit & Loss Analysis Year end Dec (RM mil) E 2014E Turnover 2, , , ,350.0 EBITDA Depreciation (39.7) (44.5) (48.0) (52.0) Associates Interest income/(exp) (35.5) (31.5) (36.0) (39.0) Exceptional items (245.0) Pre-tax profit (35.0) Tax (29.2) (26.1) (34.3) (43.0) Minorities (18.8) (32.2) (32.0) (37.0) Net profit 63.8 (93.2) Operating margin (%) Pre-tax margin (%) 5.5 NM Net margin (%) 3.1 NM Effective tax rate (%) 26.1 NM Per Share Data Year end Dec E 2014E EPS (sen) 15.9 (22.9) P/E (x) 13.7 NM Dividend (sen) Dividend yield (%) Payout ratio (%) 32 NM Book value (RM) Price/Book value (x) Cashflow/share (sen) Price/Cashflow (x) Gearing %* NM ROE (%) * excluding bills payables 4

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