1Q FY14 Results Update 1 June 2014 Muhibbah Engineering (M) Bhd Within expectations, expect stronger second half Strong potential of more Petronas, RAPID jobs ahead RM1.86b order-book, new jobs to underpin earnings Maintain BUY for strong earnings, oil & gas exposure Share price RM2.80 Market capitalization RM1,183 million Board Main BUY Key stock statistics FY Dec13 FY Dec14E EPS (sen) 20.7 23.6 P/E (x) 13.5 11.9 DPS (sen) 4.5 5.0 NTA/share (RM) 1.33 1.51 Issued capital (mil) 422.4 52-week price range (RM) 1.33-3.04 Major shareholders (%) Mac Ngan Boon 23.4% Lembaga Tabung Haji 9.9% Share Price Chart Indices FBM Emas Syariah, Sector Construction Stock code 5703 By The Research Team 3.50 3.00 2.50 2.00 1.50 1.00 0.50-2-Jan-13 16/5/2014
1QFY14 Results Highlights Year end Dec (RM mil) 1QFY14 1QFY13 % chg Turnover 393.9 386.2 2.0 Pre-tax profit 30.9 29.9 3.4 Tax (8.7) (7.6) 13.1 Minority interests (2.1) (2.5) (14.1) Net profit 20.2 19.8 1.8 EPS (sen) 4.79 4.87 Pre-tax profit margin (%) 7.9 7.7 Net profit margin (%) 5.1 5.1 Muhibbah Engineering s results for the first quarter of 2014 (1QFY14) were within our expectations, although they are 19% below our full year net profit on an annualized basis. We expect a stronger second half and 2015 as the group tenders for more projects, and Petronas Rapid project comes to fruition. Pre-tax profit for 1QFY14 came in at RM30.9 million, up 3.4% y-o-y while net profit was relatively flat, rising 1.8% to RM20.2 million. This was achieved on the back of revenue totaling RM393.9 million, up 2% y-o-y. The flattish growth in turnover and profitability in 1QFY14 reflects the completion of several large construction projects in the second half of last year, notably the South Klang Valley Expressway, which was completed in Oct 2013. Share of associates increased 18.2% from RM13 million to RM15.4 million, reflecting continued growth in its concession business, especially the Cambodian airports which saw a 10% rise in passenger arrivals in 1QFY14. As at 22 May 2014, Muhibbah s outstanding order-book stood at RM1.86 billion, up slightly from RM1.83 billion on 21 Feb 2014. This shows healthy order-book replenishment as revenue recognized in 1QFY14 amounted to almost RM400 million. The order-book comprised RM704 million from infrastructure construction, RM1.11 billion from cranes and RM45 million from shipyard. 2
Outlook and recommendation We maintain our BUY recommendation on Muhibbah, and are keeping our forecasts unchanged. We like the group s broad-based growth in its various business segments, rising international stature and its growing focus on the oil and gas sector, making the stock a good proxy to Malaysia s strong spending on the sector. We expect Muhibbah to post net profit of RM99.7 million in 2014 and RM110.8 million in 2015, with EPS of 23.6 sen and 26.2 sen, respectively. At RM2.80, the stock s P/E valuations of 11.9 times for 2014 and 10.7 times for 2015 are not expensive relative to its growth prospects and oil and gas peers, with earnings upside prospects as the group bids for more jobs. Near-term earnings will be underpinned by the large RM1.86 billion orderbook, of which 60% are tied to the oil & gas sector. We expect a stronger second half and 2015 as the group positions itself to tender for more oil & gas related jobs, particularly as the the Refinery and Petrochemical Integrated Development (RAPID) Petrochemical Complex in Pengerang, Johor, gets underway. In April 2014, Petronas had approved the Final Investment Decision (FID) of US$27 billion for the RAPID project, which Muhibbah is expected to benefit from. The national oil company is expected to spend RM300 billion in capex over the next 5 years to set up over 50 offshore exploration wells, which will trigger strong demand for offshore pedestal cranes, support vessels and platform fabrication works. In June 2013, Petronas had granted Muhibbah a licence as an Approved Supplier for the Category of Offshore Facilities Construction Major Onshore Fabrication. With its complete package of capabilities in building ships, cranes, fabricated structures, pipelines, terminals, tanks and other oil & gas related works, the group is positioning itself to garner a larger slice of the national oil company s capex. Among Muhibbah s major outstanding contracts are the Wiggins Island Coal Terminal Export Project in Australia (outstanding order-book RM213 million), Noise barriers and enclosures for MRT Corp (RM147 million), Catering facility at Doha International airport (RM103 million), Government buildings in Putrajaya (RM31 million) and refurbishment of the terminal buildings at Phnom Penh and Siem Reap airports (RM83 million). 3
The group hopes its two projects in the Middle East the earlier completed Yemen LNG project and the Doha International Airport catering facility will also open the doors to more projects in the region. Qatar in particular, is investing heavily in infrastructure ahead of the 2022 FIFA World Cup. Meanwhile Muhibbah s Cambodian airport operations offer an attractive exposure to Cambodia s economy, with GDP growth of over 7% per year until 2015, supported by the strong tourism and textile industries. In 1QFY14, the Phnom Penh and Siem Reap airports saw a 10 y-y growth in passenger arrivals to 1.69 million, following an already strong 18% growth in arrivals to 5.06 million for the whole of 2013. Growth will come from expansion of the two airports, as well as increased flights at the new third airport concession in Sihanoukville, the gateway to southern Cambodia s beaches and islands, manufacturing base and newly discovered oil and gas deposits. 4
Profit & Loss Analysis Year end Dec (RM mil) 2012 2013 2014E 2015E Turnover 2,625.5 1,899.8 2,280.0 2,550.0 EBITDA 236.2 180.8 214.4 234.8 Depreciation (45.5) (53.7) (56.0) (59.0) Associates 44.2 46.5 52.0 58.0 Interest income/(exp) (31.5) (39.6) (38.0) (38.0) Exceptional items (238.5) Pre-tax profit (35.0) 134.0 172.4 195.8 Tax (26.1) (19.1) (39.7) (48.9) Minorities (32.2) (29.7) (33.0) (36.0) Net profit (93.2) 85.2 99.7 110.8 Operating margin (%) 9.0 9.5 9.4 9.2 Pre-tax margin (%) NM 7.1 7.6 7.7 Net margin (%) NM 4.5 4.4 4.3 Effective tax rate (%) NM 14.2 23.0 25.0 Per Share Data Year end Dec 2012 2013 2014E 2015E EPS (sen) (22.9) 20.7 23.6 26.2 P/E (x) NM 13.5 11.9 10.7 Dividend (sen) 2.5 4.5 5.0 5.0 Dividend yield (%) 0.9 1.6 1.8 1.8 Payout ratio (%) NM 21 21 19 Book value (RM) 1.12 1.33 1.51 1.72 Price/Book value (x) 2.50 2.11 1.86 1.63 Cashflow/share (sen) 43.9 30.0 32.4 35.0 Price/Cashflow (x) 6.4 9.3 8.6 8.0 Gearing %* 151 110 94 83 ROE (%) NM 15.2 15.6 15.2 * excluding bills payables 5
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