STEADY PERFORMANCE: A shot of the Precast Concrete Caisson structural works at Muhibbah Steel Industrial yard in Malaysia for the Gorgon Project. With the recent NCB contract in hand, analysts at Kenanga Research expect seven per cent pre-tax margin earnings for the group.
KUCHING: With the recent NCB Holdings Bhd (NCB) contract procured by construction company, Muhibbah Engineering (M) Bhd (Muhibbah), the latter’s order book is currently standing at an estimated RM3.1 billion.
This further provided earnings visibility for another three to four years going forward.
To recap, the contract secured from NCB valued at RM338 million to commence operations in July 2011 was targeted for completion by March 2014.
The scope of work included the upgrading works for NCB’s wharfs and container terminal.
The contract was scheduled for a 33-month completion, which should commence operation
from July 2011 to March 2014.
Hence, with the contract in hand, analyst at the research arm of Kenanga Investment Bank Bhd, (Kenanga Research) expected a seven per cent of pre-tax margin earnings for the group.
“We have already factored in some new contracts to be secured in financial year 2011 (FY11) that will be totaled at an estimated RM500 million and maintained our earnings forecast for FY11 and FY12,” said the research firm.
Analysts also expected Muhibbah to be one of the beneficiaries of construction run-up in the second half of 2011 especially in infrastructure works like the ports and the oil and gas sector.
However, following the recent news on the Asia Petroleum Hub (APH) project, the research house opted for a more conservative measure when valuing Muhibbah from a revised net asset value to a price to book value (PBV) method.
“We understand that APH is currently taking steps to solve some shareholding and financing issues for the outstanding project in Johore.
“We opted to take out
30 per cent or RM111 million of the amount due out of our FY12 book value and pegged a 1.5 times PBV, which is in-line with its five-year historical average PBV ratio,” noted the research house.
With risks like the pending confirmation on APH’s White Knight and the possible provisions and write-off for APH, analysts at Kenanga Research believed that these would indeed drive Muhibbah’s valuation further up and as the re-rating catalysts going forward.
The research house pegged Muhibbah at a target price of RM1.50 per share.