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Thursday, June 16, 2011

Muhibbah Engineering – Not the end of the road for APH (CIMB)

The receivership status for the APH project as reported by SBT yesterday was a negative surprise. However, it should not be a major concern at this juncture as APH is likely to negotiate for more time to resolve the matter and rope in a new investor. The worst-case scenario for Muhibbah is a write-down of the c.RM300m due from APH, which would push Muhibbah into losses for FY11. However, there is no impact on RNAV as the amount is reflected as liabilities. As we view a write-down as remote at this juncture, we maintain our forecasts and RM2.75 target price, which is pegged to an unchanged 10% discount to RNAV. Notwithstanding this negative news, we continue to rate Muhibbah a TRADING BUY and one of our top picks for the construction sector. The main potential re-rating catalyst is project awards.

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