Earnings growing despite economic slowdown
As the outlook for the global economy turns grimmer, Muhibbah Engineering (M) Bhd stands out as one of the few engineering and construction companies that continue to see earnings growth.
The company managed to post net profit growth of 38.6% and 19.7% in 1QFY2008 and 2QFY2008 respectively. Although 3QFY2008's net profit fell 14.5% due to higher building material costs, its nine-month net profit was 12.9% higher at RM57.35 million. At end-September 2008, Muhibbah had cash of RM373.4 million, compared with RM144.6 million a year earlier. Total borrowings stood at RM204.7 million. This means the company is effectively in a net cash position.
In addition, its strong order book of RM4.74 billion as at Nov 21, 2008, is seen as an impetus to help sustain earnings growth in the next few years.
Of the total, RM3.08 billion comes from Muhibbah's infrastructure construction division, RM908 million from the shipyard division and RM751 million from the crane division. These orders will support the group's revenue growth until 2013.
As the market tumbled, Muhibbah's share price dropped by a substantial 76.4% to 99 sen on Dec 26, 2008, from its year high of RM4.20 on Jan 11, 2008. At 99 sen, and based on Bloomberg's consensus estimated earnings per share of 21.4 sen for FY2008 and 26.6 sen for FY2009, the stock is trading at attractive forward price-earnings of 4.63 and 3.72 times respectively. It should also be noted that the stock is trading below its net asset per share of RM1.13.
Considering its impressive order book and clean balance sheet, the company appears attractive at current price levels and is worth watching in 2009.
InsiderAsia says Muhibbah should be able to "continue enjoying good profits" in the next few years due to its huge order book, which is one of the largest among listed local construction companies.
"The company's various operating units are also faring well despite the slowdown. Except for the crane unit, all other divisions posted good double-digit growth figures for the first nine months of the year," InsiderAsia says in a research note.
While Muhibbah has seen its margins erode, InsiderAsia says it is not a significant drop as the company has put in place some mitigating measures, including hedging and stocking policies for raw materials.
In addition, Muhibbah's Cambodian airport concessions in Phnom Penh and Siem Reap, held under 30%-owned Societe Concessionaire des Aeroports, continue to provide steady income although growth recently declined from double digits to single.
