KUALA LUMPUR: Shares of Muhibbah Engineering came under selling pressure in late morning on Thursday, June 16 on the negative surprise about the impact from news report about Asia Petroleum Hub (APH) -- which it undertook a project for -- faced receivership.

At 11.11am, it fell as much as 21 sen to RM1.69 with more than 11 million shares done.

APH, the developer and operator of the APH oil terminal in Johor, faced the prospects of receivership, news reports said.

CIMB Research said as one of the contractors for APH, Muhibbah was awarded the marine piling and jetty works worth RM820 million. Cost escalation in 2008 led to funding issues for APH and the stalling of payments due to Muhibbah.

'The unpaid amount has accumulated to about RM300 million, which does not include RM187 million worth of outstanding works as at end-2010. Muhibbah has not made any provisions for the project as the project is still deemed viable.

'A favourable outcome for the APH project would enhance Muhibbah's net profit by an estimated RM12 million per annum in the form of interest savings from the RM300 million outstanding from APH as Muhibbah separately funded the project.

'The worst-case scenario for Muhibbah is a write-down of the RM300 million due from APH, which would push Muhibbah into losses for FY11. However, we believe that in a scenario where the receiver takes over management of APH, it may come up with a scheme to repay a large portion of the amount due to contractors, which would reducethe risk of a huge write-down.

'While this latest development is a slight disappointment, we are not overly concerned as the group's fundamentals are still intact, backed by the buoyant CONSTRUCTION [] and oil & gas sector. Furthermore, the potential provisions would have no impact on RNAV as the amount is reflected as liabilities,' said CIMB Research.