Muhibbah Engineering (MEB) has secured a RM322m job from Petronas Carigali, related to the Gansar Project, about 190km from the Terengganu shore.
Contract details. The job scope is for the provision of engineering, procurement, construction and commissioning plus installation (EPCC+1) of Light Weight Structure (LWS), Duyong brownfield modification and host tie-in services. Works will commence immediately and it is expected to be completed in 22 months, or in Oct-24.
Financial impact. MEB’s is the lead partner for the consortium that won the project. While no details of the consortium were disclosed, MIDF assumes MEB’s stake to be 60%, therefore adding RM193.2m to the group’s order book. At a reasonable profit margin of about 5%, this contributes about RM9.7m to the group throughout the period.
Order book. This new win brings the group’s current outstanding order book to RM1.29b, with earnings visibility up to FY24. We believe there is still much room for securing jobs as the outstanding order book has yet to return to pre-pandemic levels, which were usually RM1.5b to RM2b.
Earnings estimates. MIDF is maintaining its earnings estimates for MEB.
Meanwhile, the research house is making no revisions to its target price (TP) of RM0.47 as it pegs a projected forward PER of 7x to the group’s FY23 EPS of 6.76 sen.
Downgrade to NEUTRAL. MIDF is downgrading its recommendation on MEB from BUY to NEUTRAL, considering the recent run-up in share price.
MEB has been affected by weaker margins in recent quarters, similar to many other construction players, due to elevated costs related to building material costs and foreign labour, but this will of course improve gradually in quarters to come. However, the research house holds the opinion that it believes the next financial year (FY23) would be a good time for MEB to capture the potential increase in job flows, especially in the oil and gas space.
