Muhibbah on track for new Cambodia deal

PETALING JAYA: CGS International Research (CGSI Research) expects a favourable outcome from Muhibbah Engineering (M) Bhd’s Phnom Penh airport concession in Cambodia, which would likely include compensation and a new operating agreement for the new airport in Kandal.

Following a recent meeting with Muhibbah, the research house came away feeling more positive on the airport concession as the construction group indicated that negotiations with the Cambodian authorities are progressing well.

“The most ideal scenario we had posited may actually come to fruition,” said CGSI Research in a report.

The research house envisaged that Muhibbah could receive compensation for the loss of its existing management of Phnom Penh’s airport and be engaged to operate the new airport at Kandal.

It is worth noting that the Siem Reap Airport was surrendered to the Cambodian government in October 2023.

A new international airport in Phnom Penh, known as Techo International Airport in Kandal, is currently under construction and scheduled to start operations in the first half of 2025, according to Cambodia’s State Secretariat of Civil Aviation.

“We believe this will replace the current Phnom Penh International Airport operated by Muhibbah,” added the research house.

According to CGSI Research, Muhibbah now owns a 21% effective stake in Cambodia Airports, which manages two operating airports in Cambodia (Phnom Penh and Sihanoukville).

The group’s associate profit contribution for the fourth quarter of of 2023 (4Q23) was RM27mil, coming largely from its Cambodia airport concession, which also benefited from a 20% increase in passenger service charges for all three airports in Cambodia (Phnom Penh, Sihanoukville and Siem Reap) in September and October 2023.

Muhibbah said the three airports in Cambodia saw 4.8 million passenger arrivals in 2023, up 102% year-on-year (y-o-y), while 4Q23 passenger arrivals rose 16% y-o-y to 1.1 million.

CGSI Research, which has an “add” call on Muhibbah, expects better earnings delivery in the financial year 2024 (FY24)-FY25.

“This will be anchored by its RM2.2bil order book as at February 2024 and gradual recovery for its Cambodia airport concessions while activities at its shipyard have also picked up,” it noted.

The group’s construction division made a pre-tax profit of RM17mil in 4Q23 and it continues to bid for more Petroliam Nasional Bhd (PETRONAS) contracts, leveraging on its PETRONAS fabrication licence.

In addition, the group’s 4Q23 pre-tax profit for its crane business rose 56% quarter-on-quarter to RM31mil.

“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,” CGSI Research said.

Valuation-wise, the research house said: “At our target price of RM1.34, the stock will trade at 15 times calendar year 2025 price-earnings and 0.7 times price-to-book value, which is not excessive, in our view. From a price-to-book angle, the stock is tracking near its all-time low since 2009.

“We do not believe this is justified given its strong order book, the improving trajectory of passenger arrivals for its Cambodian airport concession and its PETRONAS fabrication licence,” said CGSI Research.

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