ALLIANCEDBS Research has retained its buy rating on Muhibbah Engineering (M) Bhd despite slashing its target price by 32.5% to RM1.45 from RM2.15 previously.
The reduction in the sum-of-the-parts-derived target price, according to the research house, is to reflect a lower sustainable orderbook for construction (RM700 mil vs RM1 bil previously) and cranes (RM500 mil vs RM600 mil previously).
“We still think there is value in the stock, taking into account its Petronas Fabrication licence, strong crane business, diversified expertise in construction while it continues to explore expansion into Asean for concessions,” Chong Tjen San wrote in a company report.
According to AllianceDBS, Muhibbah recorded a headline net profit of RM5 mil in 1Q20 (vs RM56 mil net loss in 4Q19 and RM33 mil net profit in 1Q19). This was on the back of a 22% decline in 1Q20 revenue y-o-y to RM333 mil.
“This was below our expectation and consensus estimate due to our under estimation of the impact of the movement control order (MCO) on its construction and crane business as well as the prolonged impact of Covid-19 on its airport concessions in Cambodia,” noted the research house.
Moving forward, AllianceDBS is trimming Muhibbah’s FY2020-22F earnings by 64%/41%/30% after imputing (i) lower associate earnings from its Cambodia airport concession; (ii) expectations of poorer 2Q20 results due to the MCO for its construction and cranes division; and (iii) lower new orders assumptions of RM300 mil-RM500 mil (vs RM600 mil-700 mil previously) for construction and RM300 mil-RM400 mil for cranes (vs RM500 mil per annum for each year previously). – June 23, 2020
