Thursday, 16 June 2011
Muhibbah: An Opportunity or A Trap?
Muhibbah was under tremendous selling pressure today after one of its client, Asia Petroleum Hub (APH) faces receivership as CIMB is pulling out its financing for APH. If APH is to go bankrupt, what does it has to do with Muhibbah? It matters because APH still owes Muhibbah RM370 million! Work done but not paid!
Muhibbah's share price skidded 20% today to RM1.52. Its listed profitable crane division Favelle Favco also dropped 10.6%. Investors are over-panic? Opportunity to grab some shares?
Muhibbah has been widely tipped as a small cap stock set for growth since 2005. In 2006, it secured its largest oversea project - Yemen Liquefied Natural Gas (LNG) Project. However, due to cost overruns and global financial crisis, this big project turned out to be a big burden to Muhibbah until 2009, where it suffered loss and dragged the construction division of the company into red in the years of 2008 & 2009. When the dust of Yemen LNG project finally settled in 2010 and the company is set for a brand new chapter of growth, here comes the APH issue... So unlucky.
I actually know close to nothing about APH. Can APH, an O&G company get bankrupt easily? No other party interested to take over this lucrative business? I think APH will be rescued by some investors in the end, but how soon the RM370mil receivables can be settled remains a doubt, as this is not a fresh issue.
How much does RM370mil loss mean to Muhibbah? Muhibbah only earned a total of RM47mil in FY2010. RM47mil a year, how long will it take to earn back the 370mil loss? However, its margin increases significantly in Q12011 as it earns RM18mil in 3 months, probably when those loss-making and low profit-margin projects are settled. Muhibbah currently has RM2.5bil worth of assets as of Q12011 and RM2.8bil in its order book. In January 2011, it was just awarded a RM480mil JV contract by Petronas for the LNG Regasification Project in Melaka.
Muhibbah has a well-diversified earning sources: infrastructure construction, cranes, shipyards and concession income from airport operation and road maintenance. Its involvement in both construction and oil & gas field may put it under the spotlight for the next 1-2 years.
How is the future of Muhibbah? Will the sell-down continue tomorrow? Are good news coming soon? I don't know.