Muhibbah Engineering is poised for potential significant gains in both the construction and crane segments. The company’s management has indicated optimism regarding substantial contract wins on the horizon, following a period of subdued activity. Muhibbah’s current order book, which includes both construction and crane projects, stands at RM1.6 billion as of August 2024. This figure is down from a peak of RM2.4 billion in November 2023, but the company remains active, having submitted a significant tender for an Engineering, Procurement, Construction, and Commissioning (EPCC) role for the Land Lebah gas field. Given its extensive experience with similar projects, such as Gansar and Bekok in Terengganu, Muhibbah is well-positioned as a frontrunner for this project.
In addition, the company’s construction earnings have shown improvement, with a pretax profit of RM40 million reported for the second quarter of 2024, a significant turnaround from the RM1 million pretax loss recorded in the same period of 2023. This increase is largely attributed to its EPCC and installation work for Petronas Carigali’s Gansar project, which includes a remaining scope of RM400 million to RM500 million. Muhibbah’s value lies in its marine-based construction and offshore platforms, leveraging its Petronas fabrication licence, rather than in government infrastructure or data centres.
The company’s crane business, under Favelle Favco, is in the running for supplying tower cranes for the ambitious Neom project in Saudi Arabia. The tender for this project closes at the end of September 2024, with a potential award early next year. Furthermore, CiTech, another division within Muhibbah’s infrastructure segment, specialises in waste heat recovery units (WHRUs) and has an order book valued at RM25 million and a tender book of RM1.1 billion as of August 2024. CiTech’s clients include major names such as Petronas Carigali, Siemens, and Keppel.
In terms of its stake in Cambodia Airports, Muhibbah holds a 21% interest. Passenger arrivals at the Phnom Penh and Sihanoukville airports, managed by Cambodia Airports, increased by 18% year-on-year to 2.3 million in the first half of 2024. The total number of passengers is projected to reach 5 million by the end of 2024. Cambodia Airports has been a significant contributor to Muhibbah’s associate profits, which rose by 63% year-on-year to RM30 million in the first half of 2024. The construction of Techno International Airport in Kandal, scheduled to open in mid-2025, is 80% complete and will replace the Phnom Penh airport. It is expected that Cambodia Airports will be compensated for its investments and will continue to operate the new airport under a fixed fee and profit-sharing arrangement.
Despite these positive developments, the sector remains undervalued with Muhibbah’s FY25F P/E ratio at 8x, compared to the sector average of 17x. CGS International Stock Broking House have reiterated an ADD recommendation with an unchanged SOP-based target price of RM1.34. The company’s prospects are bolstered by its recovery in tourist arrivals via Cambodia Airports and its potential for securing more Petronas contracts.
