Muhibah - maintain OUTPERFORM (CIMB)

Although Muhibbah’s 3% EBIT margin was lower than our projection of 5%, FY10 core net profit beat our forecast by 7%, largely because of lower-than-expected MI. But EBIT was 16% short of consensus estimates. As we expect construction margins to improve, we raise our FY11-12 EPS forecasts by 2-3% and introduce FY13 numbers. We also increase our DPS forecasts as FY10’s 3.5 sen is higher than our 3 sen forecast. Although we maintain our valuation basis of 20% discount to RNAV, our target price rises from RM2.53 to RM2.60. We maintain our OUTPERFORM rating in view of the potential re-rating catalysts of (i) this set of results, (ii) a favourable outcome for the APH project, (iii) contract awards, and (iv) receding Middle East concerns.