PETALING JAYA: Shares of Muhibbah Engineering Bhd have been taking a beating this year, plunging 28% since Jan 22 on concerns over Cambodian airport concessions.
The stock hit a three-year low of RM1.59 on Feb 4, with CGS-CIMB claiming that it was “taken aback” by the share price dip.
“Our channel checks revealed that investors’ concerns over competition risks facing its 21%-owned airports in Phnom Penh and Siem Reap have elevated given recent news that the construction of new international airports in both areas will proceed.
“The key concern is that a resolution (if any) to the existing concession agreements (CAs) turns out to be unfavourable. Separately, associate airport earnings could be hit by the coronavirus outbreak disrupting China tourist arrivals, ” it said in a report yesterday.
Muhibbah Engineering ended 5 sen down to RM1.65 yesterday.
Muhibbah Engineering holds an effective 21% associate stake in Cambodia Airports, the concession joint venture (JV) that manages and operates all three airports in Cambodia:
Phnom Penh International Airport (PPIA), Siem Reap International Airport (SRIA) and Sihanoukville International Airport (SIA).
The balance majority stake is held by Vinci Airports.
Under a public-private partnership signed with the Royal Government of Cambodia in 1995, Cambodia Airports holds the concession for the development and management of all three airports in Cambodia.
With no official statements either from the airport JV or local authorities, CGS-CIMB said concerns over potential negative implications for Muhibbah’s existing airport CAs may be overblown but not unwarranted.
“For one, the greenlight granted to the Cambodian Airport Investment Co. to build a new international airport in Phnom Penh may be seen as breaching the exclusivity of PPIA’s CA.
“Meanwhile, SRIA’s existing CA does not include an exclusivity clause; the construction of the new airport has been under way since 2018, ” the research house said.
Given the depleting infra order book, CGS-CIMB said associate airport earnings (the 21% stake) make up 63% to 78% of the research house’s 2019 to 2021 earnings per share.
“Our total estimated discounted cashflow value of RM445mil for PPIA, SRIA and SIA makes up 31% of our revalued net asset value of RM1.5bil.”
The research house has downgraded the stock from “Add” to “Reduce”, since risks to the future prospects of Muhibbah’s Cambodian airport concessions have emerged.
“De-rating catalysts could arise from more news reports on the development of the new airports in Phnom Penh and Siem Reap which could be perceived unfavourably for Muhibbah. Upside risk is retaining its airport CAs till expiry or a fair settlement to the CAs.”
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