HLG: 30 May 2008 Muhibbah Engineering

HLG: 30 May 2008 Muhibbah Engineering - Q108 below forecast on lower billings


Muhibbah Engineering BUY



Price target RM3.35



Share price at 29 May RM2.55



Investment summary


Q108 results were 19% below forecast/consensus, and we cut our FY08E EPS by 9%. However, we expect quarterly earnings to improve, and maintain our BUY rating: share price has fallen 32% YTD, and 8x FY09 PE is 20% discount to big-cap construction stocks and 30% discount to oil & gas peers.



We are positive on the oil & gas sector: (1) crude oil price at USD130/bbl is USD80/bbl above premised capex spending for oil and gas majors (2) high demand for onshore construction expertise will last up to 2010 given the under investment in O&G plants and facilities over the last ten years.



Share price bottomed
Muhibbah is one of the worst performers in the oil&gas sector (-32% YTD share price). We think job-flow prospects are bright, and valuations of 8x FY09E PE is a 20-30% discount to peers.