At a reasonable profit margin of about 5%, MIDF Research noted that the new contract win would contribute about RM9.7mil to the group.
PETALING JAYA: Muhibbah Engineering Bhd’s new contract win brings the group’s current outstanding order book to RM1.29bil, which provides earnings visibility up to financial year 2024 (FY24), according to MIDF Research.
“There is still much room for securing jobs as the group’s outstanding order book has yet to return to pre-pandemic levels, which were usually about RM1.5bil to RM2bil,” the research house said in its latest report.
At a reasonable profit margin of about 5%, MIDF Research noted that this new contract win would contribute about RM9.7mil to the group throughout the period.
Muhibbah has secured a RM322mil job from Petronas Carigali Sdn Bhd and this is related to the Gansar Project, about 190km from the Terengganu shore.
The job scope is for the provision of engineering, procurement, construction and commissioning plus installation or EPCC+1 of light weight structure, Duyong brownfield modification and host tie-in services.
Works will commence immediately and it is expected to be completed in 22 months, or in October 2024.
According to MIDF Research, Muhibhah is the lead partner for the consortium that won the project.
However, no details on the consortium were disclosed.
The research house assumed that Muhibbah’s stake to be 60% in the consortium and “this will add RM193.2mil to the group’s order book.”
The research house also maintained its earnings estimates on the group with no revisions on the stock’s target price of 47 sen per share.
“This is pegged to a projected forward price-to-earnings ratio of seven times to the group’s FY23 earnings per share of 6.76 sen,” it added.
The research house has downgraded Muhibbah to a “neutral” call from a “buy’’ previously, considering the recent run-up in the share price.
“The group has been affected by weaker margins in recent quarters, similar to many other construction players, due to elevated costs related to building material costs and foreign labour.
“However, this will improve gradually in quarters to come,” MIDF Research pointed out.
The research house also believed that FY23 would be a good time for the group to capture the potential increase in job flows especially in the oil and gas space.
