An 'ideal scenario' for Muhibbah's Cambodia concession - CGSI

KUALA LUMPUR: Negotiations between Muhibbah Engineering (M) Bhd and Cambodian authorities over a possible concession for the new airport in Phnom Penh are progressing well, with the possibility of an ideal scenario coming to fruition, said CGS International (CGSI) Research.

In the optimistic outcome outlined by CGSI, Muhibbah would receive compensation for the loss of its operations at the Siem Reap airport and be engaged to operate the new airport at Kandal, south of Phnom Penh, which is scheduled to commence operations in 1H25.

"This is because the new airport is being built by a JV between Cambodia’s State Secretariat of Civil Aviation (SSCA) and the Overseas Cambodia Investment Corporation (OCIC), which is owned by a local businessman, both of whom do not have the expertise to run an airport," said the research firm.

It also cited a March 24 article in the Khmer Times that stated a favourable result is expected based on the Royal Government's win-win policy.

However, CGSI acknowledged that details over the negotiations remain sparse.

Muhibbah owns a 21% effective stake in Cambodia Airports, which manages two operating airports, located in Phnom Penh and Sihanoukville respectively.

The Siem Reap airport concession was also previously held by Cambodia Airports, but reclaimed by the government in October 2023.

In 4Q23, Muhibbah's associate profit contribution came to RM27mil, nearly double from the preceding quarter, due mainly to the Cambodia airport concessions.

According to CGSI, there was a 20% increase in passenger service charge for all three Cambodian airports, which clocked 4.8 million passenger arrivals in 2023, a 102% increase over 2022.

For comparison, the airports' pre-pandemic passenger arrivals in 2019 stood at 11.6 million, said CGSI.

Looking ahead to FY24-25, CGSI expects better earnings delivery anchored by Muhibbah's RM2.2bil orderbook as at Feb 2024, gradual recovery of its Cambodia airport concessions and increased activity at its shipyard.

"We like Muhibbah as a proxy for a recovery in tourist arrivals with its Cambodian airport concessions while its marine expertise and Petronas fabrication licence should enable it to clinch more Petronas jobs.

"Key downside risks are patchy execution track record and higher raw material costs," said the research firm.

CGSI reiterated "add" on Muhibbah with an unchanged target price of RM1.34.