Muhibbah is a construction laggard. Our search for construction laggards throws up Muhibbah Engineering, a midsized contractor that has diversified into cranes, shipbuilding and airport/road maintenance concessions. In addition to riding on the improving outlook for project flows in both the local and overseas markets, Muhibbah may soon see a resolution to the payment issue for the Asia Petroleum Hub (APH) project, which has been a major drag on its share price. The group’s outstanding order book of RM3bn is good for another three years and has more room for upside as it is actively bidding for jobs, both locally and overseas.
Our top pick this month. Muhibbah is our top pick among our small cap universe this month. In mid-Nov, we initiated coverage with a Trading Buy recommendation and target price of RM2.00, which imputes a 20% discount to its RNAV. In addition to the likely resolution of the APH project, the share price could be catalysed by
(i) betterthan-expected quarterly performances,
(ii) more contract wins, and
(iii) a recovery in investor sentiment on the stock as its foreign shareholding has plunged from 41% in 2007 to a low of 6% now.