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Friday, January 25, 2008

Muhibbah hogs the limelight

PETALING JAYA: Muhibbah Engineering (M) Bhd is one of the top picks of investors, given its fast-growing order book and strong financial performance.

Analysts said Muhibbah would clearly attract investors' interest, mainly due to its steady flow of contracts, continued capacity expansion and good earnings visibility.

“Market expectations are now more realistic. With growth slowing, expectations are increasingly becoming more realistic after the recent sharp correction and stocks like Muhibbah that generate reasonable returns are being snapped up,” an analyst said.

A star performer in terms of price among local stocks over the past year, Muhibbah was trading at about RM1 in early 2006. The stock put on more than 253% last year despite the onset of problems related to the US subprime mortgage loans, high oil prices and inflation worries.

However, its shares were not spared the recent gyrations in prices owing to the rout in world markets. The share price tumbled to RM3.20 on Tuesday from a month high of RM4.22 on Jan 11.

The counter rebounded yesterday with a 20 sen gain, or 6.25%, to RM3.40 yesterday.

Muhibbah's order book currently stands at a record RM4.45bil.

Of the total, construction – the biggest contributor – accounts for RM3.43bil, followed by crane manufacturing (RM559mil) and shipbuilding (RM467mil).

Standard & Poor's (S&P) expects growth across all of Muhibbah's divisions, with good earnings visibility over the next two to three years, underpinned by its strong order book.

The company posted an average net profit growth of 30.4% in the last four quarters, the most significant being in the first quarter of 2007 when it recorded a 67% jump in net profit to RM14.63mil from RM8.76mil in the preceding quarter.

Analysts said the mega contracts secured by Muhibbah, particularly over the past three months, had surprised investors.

Early this month, Muhibbah made two announcements that gave an indication of the extent of its overseas expansion.

The company was awarded a RM196mil contract by Syria to rehabilitate and upgrade the passenger terminal building, road, car parks and parking apron at the Damascus International Airport.

Following this new contract, ECM Libra Avenue Securities upgraded its earnings per share (EPS) estimates for Muhibbah by 5.7% for 2008 and 2.1% for 2009.

The research house said although group revenue was expected to fall by a marginal 3.5% in 2009, net EPS is forecast to grow 20% largely led by rising contribution from its associate's operations in Cambodia.

OSK Research said Muhibbah had remained resilient despite the cyclical local construction industry.

“Although the South Klang Valley Expressway is experiencing some delays in commencing and the Asian Petroleum Hub has yet to fully take off, the group has ample projects to make up for these delays.

“We understand Muhibbah continues to bid for projects worldwide totalling in excess of RM10bil. Hence, it will see more good news this year,” OSK said, adding that Muhibbah had a bright future as it continued to deliver improving results.

Muhibbah's transformation over the past two years has been remarkable.

It has not only positioned itself as a niche player in oil and gas-related jobs, it also has become a major construction and infrastructure company.

By The Star (by Leong Hung Yee)

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