Muhibbah Engineering has reported a robust performance for the second quarter of 2024 (2Q24), with core net profit reaching RM20 million. This result brings the core net profit for the first half of 2024 (1H24) to RM26 million, aligning with expectations at 50% of both our forecast and Bloomberg consensus for the full year. Revenue for 1H24 surged by 82% to RM956 million, driven by impressive gains in the construction and crane segments.

The analysts have reiterated their ADD recommendation and a sum-of-the-parts (SOP)-derived target price of RM1.34 for Muhibbah, reflecting confidence in its potential to benefit from a recovery in tourist arrivals and its marine construction expertise.

The standout achievement for 2Q24 was the significant increase in associate profit, which doubled year-on-year to RM16 million, primarily due to the performance of its Cambodia airport concession business. This is particularly noteworthy as 2Q23 had included profits from the Siem Reap airport concession, which was returned to the Cambodian government in October 2023. Despite this, Cambodia Airports, where Muhibbah holds a 21% stake, continues to manage two airports in Phnom Penh and Sihanoukville. Passenger arrivals at these airports rose by 18% year-on-year to 2.3 million in 1H24, with Chinese passengers comprising 23% of the total in 2Q24, compared to 17% in 2Q23.

Muhibbah's construction division delivered strong results with a pretax profit of RM40 million for 2Q24, a notable turnaround from the RM1 million pretax loss recorded in 2Q23. Conversely, the crane division saw a 28% year-on-year decline in pretax profit to RM14 million. As of August 2024, the company's orderbook stands at RM1.6 billion, with RM958 million attributed to construction and RM665 million to cranes.

Despite a solid orderbook, there is an urgent need for Muhibbah to replenish its construction wins, which have been dwindling. The current orderbook in construction is valued at RM958 million. The company's focus appears to be on marine-based construction and offshore platform projects for Petronas, rather than government infrastructure or data centre projects.

In addition, there are ongoing negotiations with Cambodian authorities regarding the Phnom Penh airport concession, which may soon be replaced by the new Techo International Airport in Kandal, set to begin operations in 1H25. Muhibbah is expected to receive compensation for the loss of the Phnom Penh airport operations and could potentially be engaged to operate the new airport, though details remain scarce.