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Friday, January 18, 2013

HDBSVR fair value for Muhibbah Engineering at RM1.30 (star)

KUALA LUMPUR: Hwang DBS Vickers Research has a fair value of RM1.30 for Muhibbah Engineering (M) Bhd, based on 30% discount to RM1.86 sum-of-parts derived valuation.

It said on Friday the market had already priced in Asia Petroleum Hub (APH) issue and the recovery of receivables will re-rate the stock significantly. “Cheapest proxy to Malaysian construction and oil & gas sectors at 5.0 times FY12 PE. Resilient income underpinned by 28-year airport concession in Cambodia,” it said.

HDBSVR said Muhibbah, whose last traded price was 94 sen and a market cap of RM384mil, is an established construction company that is involved in various infrastructure works.

The projects include regasification terminal, LNG jetty & marine structures, port wharf & associated facilities, expressways, and airport construction.

“It also has a 62% stake in listed company Favelle Favco, a globally renowned crane manufacturer. Its RM2.2bn order book will provide two years earnings visibility,” it said.

HDBSVR said Muhibbah's concessions for three international airports in Cambodia (up to 2040) via its 21% effective stake in Societe Concessionaire de l'Aeroport (JV with France's Vinci Group) would be its major growth driver, riding on the impressive visitor arrivals growth there.

The research house also said Muhibbbah was still trying to recover the outstanding claims of RM432.7m for the APH project, of which RM180mil had been provided for.

“We believe the current share price has priced in the negatives. Should it make a one-off provision of RM252.7mil for the outstanding receivables, Muhibbah's NTA will only fall to 80 sen by December 2012 in the worst case scenario,” it said.

It added Muhibbah's current valuation was attractive, at a steep 50% discount to SOP value, 0.7 times price-to-book value and 4.6 times price-to-earnings (consensus FY13 earnings), which is unjustified given its strong prospects.

“Excluding the market value of Favelle Favco, Muhibbah is only valued at 3.0 times PE, based on our back-of-envelope calculation. In our view, there is limited downside for the stock, supported by 5.5% dividend yield. We derived a fair value of RM1.30 based on 30% discount to our RM1.86 SOP valuation. Muhibbah is the cheapest proxy to the Malaysian construction and O&G sectors,” it said.

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