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.

XOX: Not Funny at all

When the share price of a particular stock drops like crazy, and the shareholders of the company are still laughing out loud, you must think that these shareholders are probably crazy.

This a an interesting picture found in other blog.

    See! We broke the record!

These are the directors of XOX on the debut day of listing. The figures on the board are all red, and you can see 0.700 already. XOX opened 10% down and continue to slide and closed 35% down on its debut. Retail investors are burnt, sad, anxious, disappointed and angry, but the major shareholders look very happy!

Why? 

    From XOX prospectus

XOX's NTA is just 11sen and is making loss, retail IPO price is at 80sen base on "extraordinary" forecasted "earning". The top 3 individual shareholders are those who laughed the most in the picture. Their average effective cash cost per share is only 10sen!! For IPO at 80sen, they will become 8x richer overnight after listing! Each of them has about 40mil XOX shares (~RM4mil capital). Even if the share price fall to 50sen, their RM4mil investment will still become RM20mil. Why not laughing? Listed and mission accomplished?

Seeing the directors' reaction like this, are you going to invest your money in them? Can they protect shareholders' value? Or perhaps they just laugh because they are requested by the reporters to do so...

One person in the picture looks worried. Is the price already close to his purchase price?

Target Price: Whom to trust?

When buying shares, some people just follow the target price given by various research houses. Is the target price trustable? Well, everyone has their own opinion and their own way of arriving at the target price.

Sometimes a stock with target price of RM4.00 can suddenly being downgraded to RM2.00 overnight, when a disappointing earning is annouced or some unforseen circumstances occur. People buy at RM3.00 and happily hope to sell at RM4.00 and suddenly they say that the target price is now only RM2.00. Who to blame? How useful is the target price then?

Target price can give careful investors confidence that their own analysis is not far off the line. One thing for sure, target price can dictate the share price's short term movement, which speculators like a lot.

Just on the same day today on 14th June 2011, two reports on KNM are published.

By ECM Libra Research:

ECM Libra Research has downgraded KNM GROUP BHD [ ] to a Hold from Buy previously and cut its target price for the stock from RM3.43 to RM1.68 after KNM lowered its FY11 profit guidance by some 26% on June 13 to RM270 million at EBITDA levels owing to project delays and also lower than expected margins.

“We are cutting our FY11 earnings estimate by 51% to account for delays in the UK biomass project as well as overall lower margins for existing orderbook.

“We also cutting FY12 and FY13 earnings on the assumption that current orderbook will not be as lucrative as expected,” it said.

By HDBSVR:

KNM GROUP BHD [ ] remains a Buy at Hwang DBS Vickers Research at RM1.90 and has a 12-month target price of RM 3.35.

It said on Tuesday, June 14 KNM which is currently trading at attractive valuation of only 8x FY12 EPS, making it one of the cheapest O&G stocks in Malaysia.

“The recent sell-down by investors, due to disappointing 1Q11 earnings, is excessive. We remain bullish on KNM’s long-term prospect and the full impact of normalised margins will be reflected in FY12. We recommend investors to buy on weakness,” it said.

Whom to trust?

Tambun: Generous Dividend

Tambun Indah on 9th Jun 2011 annouced an interim single tier dividend of 4.6 sen (tax-exempted!), which translates to 6.5% yield at share price of RM0.705. No wonder its share price shot up just before the annoucement.

From Tambun Indah's IPO prospectus, it promises to pay between 40-60% of its net profit as dividend. Analyst projected a dividend yield of 7%. Now only after Q1 Tambun Indah already gives out 6.5%. How about the final dividend then?

However, for a company set for growth, sometimes it is not so good to splash the cash to shareholders as dividend. Shareholders may hope that they use the money to expand its business, buy more lands etc. But who really care?

Tambun Indah's current flagship project - Pearl City in Bandar Tasek Mutiara Simpang Ampat has gained quite good response. It plans not less than 4500 units of residential + commercial properties in Pearl City and to date about 800+ units launched with take up rate I estimate almost 90%. Previous launch since end 2009 are Pearl Garden & Pearl Villa (700+ gated guarded residential unit) and last month Pearl Square (100+ commercial unit). Next to come very soon is Pearl Indah 2ST (non gated/guarded) which should be quite affordable to the general public.