Stock Name: MUHIBAH
Company Name: MUHIBBAH ENGINEERING (M) BHD
Research House: KENANGA
Muhibbah Engineering (M) Bhd (June 4, 89.5 sen)
Maintain buy at 88.5 sen with a lower target price of RM1.35 (from RM1.80): Muhibbah's 1QFY10 net profit of RM5.3 million was below expectations at 6% and 8% of our forecast of RM85.2 million and RM63.8 million, respectively.
This is largely due to construction remaining loss-making at RM11.6 million. We are concerned that other projects in the Middle East could have cost overruns while it may have started making provisions on the receivables for the KIC Oil Sdn Bhd oil terminal in Johor which has issues with its bridging loan financier.
However, Muhibbah's shipyard and crane divisions are improving in its profitability.
Year-on-year (y-o-y), 1QFY10 net profit was 46% lower, being affected largely by the loss-making construction division with a pre-tax loss of RM11.7 million compared to a pre-tax profit of RM6.4 million. However, the losses were mitigated by the shipyard division which turned in a strong pre-tax profit on delivery of a vessel.
Quarter-on-quarter (q-o-q), it returned to net profit in 1QFY10 from a net loss of RM6.3 million as the shipyard division turned in a sterling set of results while construction pre-tax losses were lower with less cost overrun booked in.
The outlook for the group is mixed as its construction division continues to suffer with clients owing them substantial amounts for billings (its receivables, deposits and prepayment grew 30% q-o-q to RM940 million in 1QFY10).
However, order book remains strong with RM2.88 billion comprising RM1.79 billion of construction order book largely made up of the SKVE and Doha airport catering facility. Its crane and shipyard divisions continue to do well with RM491 million and RM596 million remaining order book, respectively.
We have lowered our FY10 and FY11 net profit by 35% and 21% to RM55.6 million and RM58.5 million respectively, factoring in lower construction margins and slow recognition of profit. Future contract awards have also been cut back as we believe Muhibbah will consolidate its efforts to complete existing jobs. We maintain buy with a lower target price of RM1.35 (previously RM1.80) using sum-of-parts revised net asset value (RNAV).
The stock is trading at a low PER (price-earnings ratio) of six times for FY10 and FY11. ' Kenanga Research, June 4
This article appeared in The Edge Financial Daily, June 7, 2010.
Company Name: MUHIBBAH ENGINEERING (M) BHD
Research House: KENANGA
Muhibbah Engineering (M) Bhd (June 4, 89.5 sen)
Maintain buy at 88.5 sen with a lower target price of RM1.35 (from RM1.80): Muhibbah's 1QFY10 net profit of RM5.3 million was below expectations at 6% and 8% of our forecast of RM85.2 million and RM63.8 million, respectively.
This is largely due to construction remaining loss-making at RM11.6 million. We are concerned that other projects in the Middle East could have cost overruns while it may have started making provisions on the receivables for the KIC Oil Sdn Bhd oil terminal in Johor which has issues with its bridging loan financier.
However, Muhibbah's shipyard and crane divisions are improving in its profitability.
Year-on-year (y-o-y), 1QFY10 net profit was 46% lower, being affected largely by the loss-making construction division with a pre-tax loss of RM11.7 million compared to a pre-tax profit of RM6.4 million. However, the losses were mitigated by the shipyard division which turned in a strong pre-tax profit on delivery of a vessel.
Quarter-on-quarter (q-o-q), it returned to net profit in 1QFY10 from a net loss of RM6.3 million as the shipyard division turned in a sterling set of results while construction pre-tax losses were lower with less cost overrun booked in.
The outlook for the group is mixed as its construction division continues to suffer with clients owing them substantial amounts for billings (its receivables, deposits and prepayment grew 30% q-o-q to RM940 million in 1QFY10).
However, order book remains strong with RM2.88 billion comprising RM1.79 billion of construction order book largely made up of the SKVE and Doha airport catering facility. Its crane and shipyard divisions continue to do well with RM491 million and RM596 million remaining order book, respectively.
We have lowered our FY10 and FY11 net profit by 35% and 21% to RM55.6 million and RM58.5 million respectively, factoring in lower construction margins and slow recognition of profit. Future contract awards have also been cut back as we believe Muhibbah will consolidate its efforts to complete existing jobs. We maintain buy with a lower target price of RM1.35 (previously RM1.80) using sum-of-parts revised net asset value (RNAV).
The stock is trading at a low PER (price-earnings ratio) of six times for FY10 and FY11. ' Kenanga Research, June 4
This article appeared in The Edge Financial Daily, June 7, 2010.
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