KEY INVESTMENT HIGHLIGHTS

• Earnings behind estimates in FY19

• Revenue of RM1,608.9m (+2.1%yoy) logged in FY19

• In 4QFY19, infrastructure construction segment made up 86.8% of total revenue but only 16.8% of PBT

• 2.5sen/share dividend proposed

• Change in estimate due to worse margin fetched

• Reiterate BUY with adjusted TP of RM2.08 (from RM3.73)

Earnings behind estimates in FY19. Muhibbah’s FY19 earnings of RM37.8m (-73.9%yoy) missed ours at merely 29.0% and consensus’ at only 30.0% of respective full year estimates.

Revenue of RM1,608.9m (+2.1%yoy) logged in FY19. At the profit before tax (PBT) level, the group reported RM158.5m (-42.1%yoy) in FY19. We understand that the notable contraction was due to the massive reduction of operating profit compared to the year before. Moreover, the group’s profit after tax (PAT) shrank by -48.7% to RM118.8m in FY18. The significant decline was attributed to the provision made for project claims and variation orders for construction projects.

In the quarter, infrastructure construction segment made up 86.8% of total revenue but only 16.8% of PBT. The group registered revenue of RM1396.8m (-12.6%yoy) and PBT of RM26.7m (- 81.3%yoy). It is also worth noting that, as of 28th February 2020, Muhibbah Engineering’s current order book stood at RM1.5b, i.e. construction (RM897m) and cranes (RM582m). Moreover, 50.8% of the total current order book was from projects in Malaysia and 49.2% from projects clinched overseas, i.e. Asia-Pacific (34.8%), Middle East (10.5%), Europe (3.4%), and Africa (0.5%). Moving forward, the group expects many upcoming developments in Qatar as it will be the host for FIFA World Cup 2022. In the Um Alhoul Special Economic Zone (SEZ), there are 8,400 acres to be developed over the next 20 years. We understand the group is anticipated to continue pursuing infrastructure and marine projects from both overseas and domestic markets in the future.

Source: MIDF Research - 2 Mar 2020