Muhibbah benefits from revival of Chinese tourists

PETALING JAYA: Muhibbah Engineering (M) Bhd is a prime beneficiary of a revival in global travels, particularly by Chinese tourists, according to CGS-CIMB Research.

Muhibbah owns an effective 21% stake in Cambodia Airports, the holder of the concession for the Siem Reap, Phnom Penh and Sihanoukville airports, which expires in 2040.

In the financial year 2017 (FY17) to FY19, the Cambodian airport concessions are estimated to have contributed about 57% to 70% of Muhibbah’s net profit.

“While travel demand has recovered globally since China reopened its borders early this year, it has been constrained by low flight capacity and slow visa approvals, which we believe should pick up and boost travel demand.

“Passenger arrivals to Cambodia were 2.38 million in 2022, still a far cry from 2019’s pre-pandemic levels of 11.6 million,” CGS-CIMB Research said in a note.

In the first half of 2023 (1H23), Cambodia clocked 2.48 million passenger arrivals, which marks a 270% year-on-year jump.

In terms of contribution from China, 13% of total passenger arrivals in 1H23 came from the world’s second-largest economy, compared to 3% in 1H22 and 39% in 2019.

Meanwhile, CGS-CIMB Research highlighted that Muhibbah’s construction and crane order book has returned to pre-pandemic levels.

“Contract flows have been picking up and since the third quarter of 2022, Muhibbah has clinched some RM851mil worth of new orders, bringing its infrastructure order book to RM1bil (RM1.7bil including cranes), which is back at 2019 levels.

“Gross margins were in the range of 20% to 25% for FY19 to FY22.

“Its current clientele is also impressive and includes PETRONAS Carigali, Siemens, ABB and Keppel,” it said.

Looking ahead, CGS-CIMB Research continues to like Muhibbah as a “distressed proxy” for a recovery in tourist arrivals, while its marine expertise and Petroliam Nasional Bhd fabrication licence are other positive attributes.

“While we have accounted for the potential loss of its Siem Reap International Airport concession with no compensation so far, this implies the Phnom Penh and Sihanoukville airports are free, based on the current share price of 68 sen per share.

“The Cambodia government will likely exercise its option to reclaim the Siem Reap airport concession by end-2023, according to Muhibbah – the likelihood of which has long been known by investors and which we believe is in the price,” it said.

CGS-CIMB Research has maintained its “add” call on Muhibbah, with a target price of 90 sen per share.