Muhibbah - 2Q12 results within expectations
Price Target : 1.46
Last Price : 0.935
2Q12 results within expectations
Actual vs. Expectations
Within ours and the consensus expectations.
The 1H12 net profit of RM33m made up 45% and 46% of ours and the consensus' forecasts of RM74.2m and RM72.8m respectively.
Dividends No dividend was declared during the quarter.
Key Result Highlights
1H12 net profit increased by 4% on the back of a 15% jump in revenue. The lower growth in net profit was mainly due to the poor performance of its shipyard division due to lower contracts for the division. YTD, the outstanding order book for the shipyard division has dropped by 53%.
QoQ, the net profit increased only by 5% despite the 49% jump in revenue. This was mainly due to the margin compression (pre-tax) for its construction and shipyard divisions from 2% to 1% and 27% to 15% respectively. Nonetheless, its crane division remained stable with a 10% pre-tax margin and a 78% jump in profits.
YoY, the net profit grew by 23% in tandem with its revenue growth of 22%. This is in line with higher recognition of its ongoing order book especially for its crane division (+6%).
Outlook We opine that the positive news flow on APH could lift up the sentiment on the stock and provide a better clarity on the risk of possible future writeoffs. At this juncture, we see the current situation as a trading opportunity for investors.
Apart from the APH issue, Muhibbah's order book stood at a good RM2.6b, which will last it for the next 2 years. Its crane business remains lucrative and we believe that this will further support the group's earnings going forward.
Change to Forecasts
No changes in our FY12-13E forecasts.
Rating Upgrade to OUTPEFORM
We have upgraded our recommendation on Muhibbah to an OUTPERFORM from a MARKET PERFORM as we believe that the market has already priced in APH's risk at its current share price level, which offers a 50% capital upside to our TP.
Valuation We have lowered our TP to RM1.46 based on SOP (previously RM1.67) as we factored in higher possible write-offs for APH to RM240m from RM111m.
Risks Prolonged receivership status for APH.
Muhibbah Engineering: Don’t crane your neck for a happy ending to APH (CIMB)
Don’t crane your neck for a happy ending to APH
As we expect a stronger 2H, Muhibbah's interims were largely in line, with annualised 1H12 core profit making up 95% of our forecast and 103% of consensus. But share price upside is capped by depleting contracts for shipping and risk of a major provision for APH.
Our target price is still pegged to 40% RNAV discount. Opportunities for contracts are still intact but sentiment on the stock remains weak, plagued by APH. Chances of a big provision in FY12 are still high. An accounting loss is likely for FY12. We remain Neutral, preferring WCT and Mudajaya.
Shipping is the weakest link
Muhibbah's annualised 1H12 core earnings made up 95% of our full-year forecast and 103% of consensus numbers. The performance was broadly in line with our expectations as 2H should improve. The shipping division (fabrication of vessels) tanked, with revenue slumping 77% and pretax profit sinking 62% yoy. Its order book stood at RM70m, down 26% from 1Q12. The infrastructure segment led revenue numbers in 1H12, surging 25% yoy. The Favelle Favco crane business was also the star performer (revenue up 71%), driven by strong orders in the past 18 months (RM716m order book). The 132% surge in cranes' pretax profit partially offset the 32-62% slump in pretax profit from the infrastructure and shipping segments. We expect infrastructure margin to expand to around 3-4% in 1H12 from 1% in 1H12, fuelled by progress billings. No dividends were declared, which was no surprise.
APH status quo
There is no change in the status of the Asia Petroleum Hub (APH) project. A bumper provision in FY12 remains a high possibility.
Switch to our top picks
Sentiment on Muhibbah will remain weak in 2H12. Switch to our top picks, WCT and Mudajaya.