HLG: Muhibbah - H108 results within expectation (29 August 2008)

Muhibbah Engineering BUY



Price target RM3.35



Share price at 28 Aug RM1.91



Investment summary


H108 net profit (+28% yoy) was in-line with HLG/consensus estimate. We maintain our BUY rating on Muhibbah: (1) significant mismatch between share price performance (-49% YTD) and order book expansion (+51% yoy) in infrastructure and oil & gas related activities; (2) 19% EPS CAGR over FY07-10E into 20% PE discount to big-cap peers like IJM/Gamuda. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction.



Lookout for new orders

H108 results show strong growth in all key divisions. Share price is trading at 7x FY09 PE, 20% discount to big-cap construction players. Newsflow on new overseas jobs could re-rate share price.