KUALA LUMPUR: The first half of 2017 could be a period of good newsflow for Muhibbah Engineering (M) Bhd as it continues to actively tender for infrastructure and marine jobs, both locally and overseas, according to CIMB Research.
“We would not discount the group securing more packages in QEZ-3. Our target price is still pegged to a 30% revised net asset values (RNAV) discount. Key catalysts are job flows. At 9-10 times calender year 2017-2018 price-earning (P/E), its valuation remains attractive versus our construction average of 14-15 times,” CIMB said in a report.
It added that Muhibbah remained the house’s preferred small/mid-cap pick while the downside risk was lower-than-targeted order wins.
Muhibbah shares rose 6 sen, or 2.55% to RM2.41 after it secured a worth approximately Qatari Riyal 356.7 million (RM438.1mil) from Economic Zones Company of Qatar (MANATEQ) for the construction of roads and infrastructure works at Um Alhoul Economic Zone (QEZ-3) Phase 2.1 (Portion 2A, Marine Cluster), Qatar.
CIMB said Muhibbah’s contract win increased the total (infra, cranes & shipyard) outstanding order book by 26% to RM2.2bil, as it bumps up the infra segment’s order book to RM1.4bil.
For the other divisions, cranes’ (Favelle Favco) order book is RM698mil, while shipyard’s stands at just RM48mil.
“As the RM438mil higher-margin new job forms part of our RM800mil assumed job wins for FY17 forecast, we retain our EPS FY16-18 EPS forecasts but highlight a fairly good chance of the group beating our order win assumptions this year,” CIMB said.
The research house added that during a recent meeting management sounded more upbeat than before about its job replenishment outlook in 2017.
“We think investors should not underestimate the prospects of its marine/infra segment (the group’s niche area) that could make a comeback this year. After securing four packages worth almost RM1bil from Petronas’s Rapid, the group has turned less upbeat about tender prospects there due to the more competitive landscape,” it said.
CIMB said following this contract win, management has clarified that its tender book this year amounts to as much as RM5bil, almost double 2015’s figure by its estimates, and comprises largely infrastructure contracts.
It said 40% (RM2bil) of the RM5bil total value of jobs in tender comprised those related to marine infrastructure which is the group’s niche area.
“We understand that the remaining 40% are domestic and overseas infra contracts, including one potential southern portal package for MRT 2,” it added.
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