Muhibbah eyes domestic, foreign infrastructure and marine jobs in 2017

KUCHING: Muhibbah Engineering (M) Bhd (Muhibbah) is looking for new infrastructure and marine contracts both local and oveseas in 2017.

The research arm of CIMB Investment Bank Bhd ( CIMB Research) in a report yesterday said Muhibbah could turn more aggressive in overseas and domestic markets for infrastructure jobs in 2017.

The research firm gathered that the group continues to look for infrastructure and marine jobs both locally and overseas adding that there could be more than RM4 billion worth of tenders the group is pursuing over the medium term,

As at end of third quarter of 2016 (3Q16), CIMB Research estimated that the value of contracts in tender by Muhibbah stood at RM4 billion, comprising infrastructure, rail and marine infrastructure contracts.

Nonetheless, the research firm retained its forecast of RM800 million worth of new contracts for Muhibbah to be secured in financial year 2017 (FY17) ending December 2017.

Meanwhile, the research firm observed that Muhibbah’s outstanding order book stood at RM1.7 billion.

It noted the group had in earlier this year secured several contracts.

Those include a RM136.9 million contract from Petronas Carigali Sdn Bhd for the extension of an office building in Sabah by its consortium Muhibbah and KK Dinamik Sdn Bhd, a RM92 million vessel contract from Malaysian Maritime Department and a RM88 million a new airport terminal contract (Phnom Penh Airport) by its joint venture of Vinci Construction Grands Projects (VCGP) and Muhibbah.

Besides that, CIMB Research noted the group has secured a RM71 million purchase orders through its associate company Favelle Favco Bhd ( Favelle Favco).

On another note, CIMB Research believed Muhibbah’s shipyard division through Favelle Favco could make a turnaround in 2017.

The research firm forecasts orders of one to two vessels per year from the marine department.

It opined that the group’s forecast segmental profit of RM20 million- RM27 million could double if the group secures two or three more high-margin orders from the non-oil and gas industries.

Moreover, CIMB Research believed the company has the potential to expand its ship building, repairs and major fabrication works in Kuantan, Pahang similar to the group’s 80-acre site in Teluk Gong, Klang, Selangor.

The research firm noted the group signed a 500-acre land deal with Pahang state government for the development of Kuantan Maritime Hub (KMH) for RM27 million in the middle of 2016.

It gathered that the land is a greenfield waterfront land located south of Kuantan Port and the Malaysia-China Kuantan Industrial Park ( MCKIP) on the east coast of Peninsula Malaysia.

Likewise, CIMB Research noted Muhibbah is the only construction player that has diversified into airports construction and concessionaire, through the privatisation of three Cambodia International airports in 1995.

The research firm noted the group owns a 21 per cent stake each in Siem Reap, Phnom Penh and Sihanoukville International Airports.

It observed that the concession periods for all three airports has 25 more years of recurring income that is denominated in US dollar.

Hence, it forecasts associate profits of RM52 million to RM55 million per annum for Muhibbah in FY16 to FY18.

Futhermore, CIMB Research said the group’s earnings would also benefit from a strong US dollar.

It noted more than 50 per cent of the group’s profit benefits from the stronger US dollar mainly cranes (Favelle Favco) and Cambodian airports.

The research firm also pointed out more than 50 per cent of Muhibbah’s group net profit benefits from the stronger US dollar.

It opined that key growth catalysts for Muhibbah in 2017 are job flows.

It noted the valuation of the company’s shares remained attractive at eight to nine times of foreceast price earnings (PE) for FY17-FY18 against the industry’s average PE of 14 to 15 times.

At eight to nine times forecast PE for FY16-FY17 , CIMB Research highlighted that the company’s stock price remains the cheapest for the construction companies under its coverage.

Therefore, CIMB Research is optimistic on the outlook of Muhibbah in 2017.