CORPORATE ANALYSIS OF
MUHIBBAH ENGINEERING (M) BERHAD
.0 INTRODUCTION
The aim of this Corporate Analysis is to evaluate the current and past financial position and the results of operations of 'Muhibbah Engineering (M) Berhad'. The primary objective to determine the best possible estimate predictions about the future prospect, analyst and evaluate the performance, financial standing and investment opportunities of the company.
2.0 COMPANY SELECTION
Muhibbah Engineering (M) Bhd is a public listed company on the Main Board of the Kuala Lumpur Stock Exchange (KLSE) on 1993. Muhibbah is one of the Malaysia's leading construction corporations with domestic and international operation. The company has been selected for corporate analyses are mainly of the following reasons :-
* Muhibbah is a public listed company in main board of Kuala Lumpur Stock Exchange (KLSE). A well-known, solid fundamentals, good management and innovative company which is not only active in Malaysia construction industry but also abroad.
* For the financial year 2006 Muhibbah has achieved the turnover of RM1.086 billion, which is meet the requirements given for this analysis. (As a figurative comparison, £1 = RM1 in value). *(The used of audited financial reports for year 2006 because the reports for 2007 has not yet been published)*
* Besides of construction development, Muhibbah also diversify its core business and successfully involved in manufacturing of cranes, building material, aviation support equipment, ship building and ship repair. Nonetheless, Muhibbah has established itself in the oil & gas construction industry and has successfully completed many ventures abroad.
* Recently, Muhibbah involved in joint-ventures that hold stakes in airport concessions expiring in 2040 for Phnom Penh International Airport, Siem Reap International Airport, and Sihanoukville International Airport. This wills contribute positively to the company's profit.
3.0 THE COMPANY BACKGROUND
3.1 Company's History
Muhibbah had its beginnings in 1972 when it was incorporated as specialist in marine and civil engineering and construction company. In 1994 the company was listed on the Main Board of Kuala Lumpur Stock Exchange (KLSE). From 1994 to 2000 Muhibbah was ventured into overseas market in Australia, Germany, Thailand and Sudan. In 2003 the company received International Achievement Award from Malaysian Construction Industry Development Board (CIDB) for recognition of involvement in oversea projects. In 2006 Muhibbah entered into overseas market in Yemen. Today, Muhibbah stands firm in the various discipline of engineering construction; such as construction of building structures, airport facilities, marine works, oil and gas, bridges and roads including provision of Intelligent Transportation System.
3.2 Company's Structure
Muhibbah is organised into four (4) core business segments which are Infrastructure Construction Division, Cranes Division, Shipyard Division and Concessions Division. The corporate structure is illustrated in figure 1. The company structure by core business segment and geographical segment are illustrated in figure 2 and 3.
.
3.3 Company's Business Segments
3.3.1 Infrastructure Construction Division
The infrastructure construction is the core business of Muhibbah group which contribute delivery 58% of the group income in year 2006. This segment engaged in construction projects, engineering contract works, oil and gas, and provision of technical assistance. A major achievement is the completion of the oil jetty at Horizon Oil Terminal in Jurong, Singapore had allows Muhibbah to tender for similar projects in the international market. In 2006, Muhibbah was successful in securing a contract from YEMGAS FZCO, Yemen LNG Jetty Works is the largest single project secured by the Group. In March 2007, the Group was awarded with the Petroleum Hub and Bunkering Facility project near Tanjung Pelepas. Muhibbah had success reinforced the reputation in amongst the global oil and gas companies and brought other opportunities to the Group as an integrated services provider for the oil and gas industry in all its core business divisions.
3.3.2 Cranes Division
Muhibbah also involved in cranes operation and its delivered 31% of the turnover to the group in year 2006. This division achieved a major milestone in its corporate restructuring with the listing of Favelle Favco Berhad to the Second Board of Kuala Lumpur Stock Exchange (KLSE) on 2006. The cranes segment is involved in the design, manufacture, supply, service and rental of cranes. The cranes division's turnover significant increased further with continuing growth in offshore pedestal cranes from oil and gas companies worldwide and resurgence of strong demand for construction tower cranes.
3.3.3 Shipyard Division
The shipyard segment was contributed 11% of the group income in year 2006. This division has grown strongly and profitable over the years. The marine-ship building and ship repair segment provides ship building, ship repair, and marine-related services. Muhibbah have established good business relationships with reputable clients within the oil and gas related industry, with many repeat orders to build offshore vessels for the oil and gas industry. The continuing boom in the oil and gas industry increased the demand for offshore vessels to service the offshore platforms. This will be a good opportunity for the shipyard division to capitalise on the huge opportunities in the offshore oil and gas market for vessels.
3.3.4 Concessions Division
The concessions segment is an operator and concessionaire of airports, as well as provides operation and maintenance of roadways and bridges. The earnings for this segment are generated from Roadcare (M) S/B ("Roadcare") and Societe Concessionaire de l' Aeroport ("SCA"). SCA owns the exclusive rights for privatisation of international airports in Cambodia with concession periods up to 2040. Roadcare is principally involved in the maintenance and upgrading of roads, under a fifteen-year (15) concession period to maintain federal roads in the central states and the east coast of Peninsular Malaysia.
Figure 1 : Corporate Structure Muhibbah Engineering (M) Bhd
Source : Muhibbah Engineering (M) Bhd, Annual Report 2006
As at
Construction
Cranes
Marine-ship Building
Concessions
Consolidated
31/12/2006
Division
Division
& Ship Repair
Division
Division
(RM)
(RM)
(RM)
(RM)
(RM)
Revenue
628,196,000.00
336,269,000.00
121,949,000.00
-
1,086,414,000.00
Percentage
58%
31%
1%
0%
00%
Figure 2 : Muhibbah Engineering (M) Bhd - Company Structure by Core Business Segment
As at
Inside
Outside
...
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Source : Muhibbah Engineering (M) Bhd, Annual Report 2006
As at
Construction
Cranes
Marine-ship Building
Concessions
Consolidated
31/12/2006
Division
Division
& Ship Repair
Division
Division
(RM)
(RM)
(RM)
(RM)
(RM)
Revenue
628,196,000.00
336,269,000.00
121,949,000.00
-
1,086,414,000.00
Percentage
58%
31%
1%
0%
00%
Figure 2 : Muhibbah Engineering (M) Bhd - Company Structure by Core Business Segment
As at
Inside
Outside
Consolidated
31/12/2006
Malaysia
Malaysia
(RM)
(RM)
(RM)
Revenue
394,055,000.00
692,359,000.00
1,086,414,000.00
Percentage
36%
64%
00%
Figure 3 : Muhibbah Engineering (M) Bhd - Company Structure by Geographical Segment
4.0 CHAIRMAN'S STATEMENT
Tuan Haji Mohamed Taib bin Ibrahim is the Chairman of the Board of Directors of Muhibbah Engineering (M) Bhd. In his statement, he satisfies with the improvements in all its core business divisions and record revenue of RM1.09 billion in years 2006 compared with RM970.74 million in year 2005; and it is a first time in the Group's history. He adds that the contribution from its overseas operations to the group's profit is approximately 64% in 2006 from 45% in 2005. This is due to the increase in exports of cranes and the construction jobs it has secured.
The improvement in financial results for 2006 is mainly attributed to the construction of oil jetty at Horizon Oil Terminal in Singapore; contribution from the cranes division due to the increased activities worldwide in the oil and gas sector and construction sector; contribution from the shipyard division pursuant to demands for anchor-handling tugs for the oil and gas exploration and production activities; and contribution from airports concession in Cambodia; and road maintenance concession for federal roads in the central region of Peninsular Malaysia.
Muhibbah saw a major milestone in the Group's corporate development with the chain listing of its subsidiary, Favelle Favco Bhd on the Second Board of KLSE on 15 August 2006; and implemented a new Employees Share Option Scheme to recognise the contribution of the valued employees of the Group, to retain and motivate these employees who are the key to the success of the Group.
The 9th Malaysia Plan ("9MP") has projected that the economy is expected to grow at an average rate of 6% for the period 2006 - 2010 whilst the Third Industrial Master Plan targeted an average of 6.3% annually for the 2006 - 2010 period. Muhibbah sees opportunities to participate in the Government's allocation for infrastructure projects such as bridges, roads, airports, tolls and highways with the implementation of 9MP.
Oil and gas are aggressively expanding exploration and development activities. Muhibbah has emerged as an oil and gas player with 84% of the Group's order book of RM 2.08 billion as at 5 May 2007, being derived from oil and gas projects from various continents in the world. The Group has identified oil and gas, marine and infrastructure related facilities projects in South East Asia, North Africa and the Middle East worth approximately RM10 billion and which the Group intends to bid for over the next 2 years.
Muhibbah success over the many years has only been possible because of the outstanding commitment and continuing dedication of all management and staff. "The Entire MUHIBBAH Team target is to increase its global presence to create shareholders value and results for its valued stakeholders."
5.0 AUDITOR'S REPORT
The financial statement had been audited by KPMG Chartered Accountants, The auditor are responsibility to form independent opinion accordance with Section 174 of the Companies Act, 1965 and conducted in accordance with approved Standards on Auditing in Malaysia. The auditors give a true and fair view of the company and its subsidiary companies' financial statement. Finally the auditor had declared that the audit reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment made under subsection (3) of Section 174 of the Act.
6.0 CORPORATE ANALYSIS
6.1 Ratio Analysis
Ratio Analysis is a quantitative investment technique used to compare a company on a relative basis to the market in general. Changes in ratios can help signal important changes in the direction of the company's fortunes.
The accurate ratio analysis can be obtained by compare the ratios of the company performance relative to the benchmark ratios from the same company over time or comparing with the similar companies to determine whether the company is becoming more or less efficient over time.
Ratio may be classified according to their objectives into :-
* Performance Evaluation
* Financial Standing
* Investment Opportunities
6.1.1 Data Information Extracted From Muhibbah Engineering (M) Berhad Annual Report for Year 2005 & 2006
Item
Description
Year 2005
Year 2006
(RM'000)
(RM'000)
Revenue
970,740
,086,414
2
Profit before tax & interest
59,390
76,579
3
Profit before tax
45,737
65,091
4
Profit after tax
43,046
47,831
5
Net Assets
382,026
494,957
6
Fixed Assets
425,795
454,857
7
Current Assets
793,455
924,063
8
Working Capital
(43,769)
40,100
9
Stock
95,098
24,938
0
Debtors
267,579
339,051
1
Creditors
248,540
322,436
2
Current Liabilities
837,224
883,963
3
Long & Short Term Borrowings
222,039
267,410
4
Interest Payment
3,653
1,488
5
Dividen per share
0.040
0.075
6
Earning per share
0.180
0.2291
7
Capital Employed
382,026
494,957
8
Shareholders Funds
287,239
321,437
6.1.2 Ratio Calculation for Muhibbah Engineering (M) Berhad for Year 2005
NO
RATIOS
FORMULA
FY2005
Benchmark
PERFORMANCE RATION
i
ROCE
Profit Before Taxation & Interest
x 100%
59,390,000.00
x 100%
=
5.55%
8%
Capital Employed
382,026,000.00
ii
ROE
Profit After Taxation
x 100%
43,046,000.00
x 100%
=
4.99%
22%
Shareholders' Fund
287,239,000.00
iii
PROFIT MARGIN
Profit Before Taxation
x 100%
45,737,000.00
x 100%
=
4.71%
5%
Turnover
970,740,000.00
iv
NET ASSETS TURNOVER
Turnover
970,740,000.00
=
2.54
3.6
Net Assets
382,026,000.00
v
FIXED ASSETS TURNOVER
Turnover
970,740,000.00
=
2.28
8.2
Fixed Assets
425,795,000.00
vi
WORKING CAPITAL RATIO
Turnover
970,740,000.00
=
-22.18
2.1
Working Capital
(43,769,000.00)
vii
STOCK TURNOVER
Turnover
970,740,000.00
=
0.21
4.2
Stock
95,098,000.00
viii
DEBTORS TURNOVER
Turnover
970,740,000.00
=
3.63
22.0
Debtors
267,579,000.00
ix
DEBTOR COLLECTION DAYS
x 365 days
x 365 days
=
01.00
7.0
Debtor Collection Days
3.63
x
CREDITORS TURNOVER
Turnover
970,740,000.00
=
3.91
8.1
Creditors
248,540,000.00
xi
CREDITORS COLLECTION DAYS
x 365 days
x 365 days
=
93.00
20.0
Creditors Collection Days
3.91
2
FINANCIAL STANDING RATIO
i
CURRENT RATIO
Current Assets
793,455,000.00
=
0.95
.2
Current Liabilities
837,224,000.00
ii
ACID TEST RATIO
(Current Assets - Stocks)
(793,455,000 - 95,098,000)
=
0.83
0.9
Current Liabilities
837,224,000.00
iii
GEARING RATIO
Interest Bearing Debts
222,039,000.00
=
0.77
0.25
Shareholders' Funds
287,239,000.00
iv
INTEREST COVER
Profit Before Taxation & Interest
59,390,000.00
=
4.35
4.5
Interest Payment
13,653,000.00
3
INVESTMENT OPPORTUNITIES RATIO
i
DIVIDEND YIELD
Dividend per Share
x 100%
0.040
x 100%
=
2.01%
6%
Market Price per Share
.990
ii
DIVIDEND COVER
Earning per Share
0.180
=
4.51
2
Dividend per Share
0.040
iii
PRICE EARNINGS RATIO
Market Price per Share
.990
=
1.06
29
Earning per Share
0.180
6.1.3 Ratio Calculation for Muhibbah Engineering (M) Berhad for Year 2006
NO
RATIOS
FORMULA
FY2006
Benchmark
PERFORMANCE RATION
i
ROCE
Profit Before Taxation & Interest
x 100%
76,579,000.00
x 100%
=
5.47%
8%
Capital Employed
494,957,000.00
ii
ROE
Profit After Taxation
x 100%
47,831,000.00
x 100%
=
4.88%
22%
Shareholders' Fund
321,437,000.00
iii
PROFIT MARGIN
Profit Before Taxation
x 100%
65,091,000.00
x 100%
=
5.99%
5%
Turnover
1,086,414,000.00
iv
NET ASSETS TURNOVER
Turnover
1,086,414,000.00
=
2.20
3.6
Net Assets
494,957,000.00
v
FIXED ASSETS TURNOVER
Turnover
1,086,414,000.00
=
2.39
8.2
Fixed Assets
454,857,000.00
vi
WORKING CAPITAL RATIO
Turnover
1,086,414,000.00
=
27.09
2.1
Working Capital
40,100,000.00
vii
STOCK TURNOVER
Turnover
1,086,414,000.00
=
8.70
4.2
Stock
124,938,000.00
viii
DEBTORS TURNOVER
Turnover
1,086,414,000.00
=
3.20
22.0
Debtors
339,051,000.00
ix
DEBTOR COLLECTION DAYS
x 365 days
x 365 days
=
14.00
7.0
Debtor Collection Days
3.20
x
CREDITORS TURNOVER
Turnover
1,086,414,000.00
=
3.37
8.1
Creditors
322,436,000.00
xi
CREDITORS COLLECTION DAYS
x 365 days
x 365 days
=
08.00
20.0
Creditors Collection Days
3.37
2
FINANCIAL STANDING RATIO
i
CURRENT RATIO
Current Assets
924,063,000.00
=
.05
.2
Current Liabilities
883,963,000.00
ii
ACID TEST RATIO
(Current Assets - Stocks)
(924,063,000 - 124,938,000)
=
0.90
0.9
Current Liabilities
883,963,000.00
iii
GEARING RATIO
Interest Bearing Debts
267,410,000.00
=
0.83
0.25
Shareholders' Funds
321,437,000.00
iv
INTEREST COVER
Profit Before Taxation & Interest
76,579,000.00
=
6.67
4.5
Interest Payment
11,488,000.00
3
INVESTMENT OPPORTUNITIES RATIO
i
DIVIDEND YIELD
Dividend per Share
x 100%
0.075
x 100%
=
2.50%
6%
Market Price per Share
3.000
ii
DIVIDEND COVER
Earning per Share
0.229
=
3.05
2
Dividend per Share
0.075
iii
PRICE EARNINGS RATIO
Market Price per Share
3.000
=
3.09
29
Earning per Share
0.229
6.1.4 Summary of Ratio Calculation for Muhibbah Engineering (M) Berhad for Year 2005 & 2006
NO
DESCRIPTION
INDTY
MUHIBBAH
%
BMK
FY 2005
FY 2006
CHANGE
6.1
PERFORMANCE RATION
6.1.1
RETURN ON CAPITAL EMPLOYED (ROCE)
8%
5.55%
5.47%
-0.51%
6.1.2
RETURN ON EQUITY (ROE)
22%
4.99%
4.88%
-0.73%
6.1.3
PROFIT MARGIN
5%
4.71%
5.99%
27.18%
6.1.4
NET ASSETS TURNOVER
3.6
2.54
2.20
-13.62%
6.1.5
FIXED ASSETS TURNOVER
8.2
2.28
2.39
4.77%
6.1.6
WORKING CAPITAL RATIO
2.1
-22.18
27.09
-222.16%
6.1.7
STOCK TURNOVER
4.2
0.21
8.70
-14.81%
6.1.8
DEBTORS TURNOVER
22.0
3.63
3.20
-11.68%
6.1.9
DEBTOR COLLECTION DAYS
7.0
01.00
14.00
2.87%
6.1.10
CREDITORS TURNOVER
8.1
3.91
3.37
-13.73%
6.1.11
CREDITORS COLLECTION DAYS
20.0
93.00
08.00
6.13%
6.2
FINANCIAL STANDING RATIO
6.2.1
CURRENT RATIO
.2
0.95
.05
0.31%
6.2.2
ACID TEST RATIO
0.9
0.83
0.90
8.43%
6.2.3
GEARING RATIO
0.25
0.77
0.83
7.62%
6.2.4
INTEREST COVER
4.5
4.35
6.67
53.24%
6.3
INVESTMENT OPPORTUNITIES RATIO
6.3.1
DIVIDEND YIELD
6%
2.01%
2.51%
24.88%
6.3.2
DIVIDEND COVER
2
4.51
3.05
-32.23%
6.3.3
PRICE EARNINGS RATIO
29
1.06
3.05
8.05%
6.1.5 Muhibbah Engineering (M) Berhad - Share Price Performance at
26th February 2008
MUHIBBAH ENGINEERING (M) BHD
Symbol & Code : MUHIBAH (5703)
Board : Main
Industry : Construction
Prev
Open
High
Low
Last
Change
% chg
Volume
2.99
3.02
3.06
3
3
0.01
0.33
364
Share Price Performance
High
Low
Prices 1 Month
3.560
(25-Jan-08)
2.960
(22-Feb-08)
Prices 3 Months
4.220
(11-Jan-08)
2.960
(22-Feb-08)
Prices 12 Months
0.700
(26-Jul-07)
2.960
(22-Feb-08)
Volume 12 Months
44,245
(22-Jan-08)
62
(16-Mar-07)
Source : http://biz.thestar.com.my/marketwatch/charts/
6.2 Performance Evaluation
The assessments of performance evaluation for the company can analyses through the following ratios:-
6.2.1 Profitability Ratios
With analyzing the Performance Rations will enable us to see the effectiveness of the organisation had used its resources to generate a satisfactory profit.
(i) Return on Capital Employed (ROCE)
Return on capital Employed (ROCE) is used as measure of the returns that a company is realising from its capital employed. The ratio representing the efficiency with which capital is being utilised to generate revenue.
The ROCE for Muhibbah dropped average 0.51% for FY2006 as a result of the increased in average capital employed (ROCE - FY2005: 15.55%; FY2006: 15.47%) and 2.53% lower compared to the industry benchmark of 18%. The group is over capitalised and indicated an inefficient management of capital invested.
(ii) Return on Equity (ROE)
Return on Equity (ROE) is used as measures of company efficiency at generating profits from every dollar of net assets and shows how well a company uses investment dollars to generate earnings growth.
The ROE of Muhibbah has declined about 0.73% since FY2005 (ROE - FY2005: 14.99%; FY2006: 14.88%). Compared with the industry benchmark of 22% it is significantly indicated that the management still required to improve their performance in generating profits for its shareholders. Muhibbah may improve its ROE by find a way to grow by making a good acquisition, by increasing its financial leverage or other means.
(iii) Profit Margin
Profit Margin is used as measures the profit that is generated from revenue. Muhibbah increased 27.18% on FY2006 (PM - FY2005: 4.71%; FY2006: 5.99%). The profit margin is close to the industry benchmark of 5%. The increasing of the profit margin was largely due to the high profit mark-up, new project undertaken and well performed by Muhibbah in year 2006. This indicated that the company has advantages over its competition and give investors deeper insight into management efficiency.
6.2.2 Asset Management Ratios
Asset management ratios will enable us to measure the ability of assets to generate revenues or earnings for a company.
(i) Net Asset Turnover
Net asset turnover ratio measures the ability of company to use the net assets of the business to generate revenue.
The net asset turnover is decreased 13.62% compared with FY2005. (NAT- FY2005: 2.54; FY2006: 2.2). A slightly lower ratio if compared to the industry benchmark of 3.6 but its still acceptable since the ratio shall exceed 0.50. This gives an indication that the additional assets will not generate more sales and profit to Muhibbah.
(ii) Fixed Assets Turnover
Fixed asset turnover measures the ability of company to use its fixed assets to generate revenue.
Muhibbah had increased the fixed assets turnover performance about 4.77% on FY2006. (FAT- FY2005: 2.28; FY2006: 2.39). The improvement is mainly contributed by the additional investment on property, plan and equipment. However, the industry benchmark achieved 8.2 ratios with the little investment in the fixed assets. This indicated that the investment in fixed assets may not immediately to generate high revenue but it may take a year or more for the company to fully utilize those investments.
(iii) Working Capital Ratio
Working capital ratio measures the ability of the firm has enough short-term assets to cover its immediate liabilities.
Muhibbah achieved an excellent working capital ratio with 27.09 in FY2006 compared with -22.18 in FY2005. It is even better comparable to the industry benchmark of 12.1. The improvement of the ratio gives a sign of managerial efficiency in the company with high inventory and accounts receivable.
(iv) Stock Turnover
Stock turnover indicated the index of speed with which inventory moves in and out of a business location. Stock turnover is an indicator of sales volume.
The stock turnover ratio of 8.7 for FY2006 is low against an industry benchmark of 14.2. A drop of 14.81% compared with FY2005 (ST - FY2005 10.21; FY2006 8.7) reflects the high level of inventory in the form of unsold properties due to slow down in sales.
(v) Debtors Turnover
Debtors' turnover ratio shows the average number of days the company takes to collect debts.
The debtor collection days worsened from 101 days to 114 days in FY2006. It is substantially far compared with industry benchmark of 17 days. The higher collection period will severely affect the company's liquidity.
(vi) Creditors Turnover
Creditor turnover ratio used to measures how many times a company payables turn over during a year.
The creditor days added from 93 days in FY2005 to 108 days in FY2006 and comparative far with industry benchmark of 20 days. The creditor day which is shorter than the debtor collection day result the company faced cash flow problems. It is an indication that Muhibbah take a risk to pay the creditors before receiving money from debtors.
6.3 Financial Standing
The financial standing used to analyses the company's ability to meet its short-term financial obligation and efficiency of converting assets into cash.
6.3.1 Short Term Liquidity Ratios
(i) Current Ratio
Current Ratio is a measure to compares all the current assets of a company to all the current liabilities. Basically it's indicated that if the company sold all its readily available assets, would it be able to pay off its immediate debt. A general guideline of the current ratio should be about 2:1.
The current ratio increased 10.31% from FY2005 (CR - FY2005: 0.95; FY2006: 1.05) whiles the industry benchmark required a current ratio of 1.2, Muhibbah maybe unable to meet the debt obligation with RM1.05 worth of current assets for every RM1.00 worth of liabilities.
(ii) Acid Test Ratio
Acid Test Ratio is the most stringent measure of how well the company can meet its short-team financial liabilities. This ratio should be around 1:1.
Muhibbah achieved an acid test ratio about 0.90 on FY2006 while the industry benchmark required the same ratio. An increasing about 8.43% compared with 0.83 on FY2005. This figure indicates that the company is unable to meet its liabilities in short term. Although the acid test ratio of Muhibbah appear to be improve, it does not shown a good management of trade debts as can be seen from the increasing of the high debtors days of 114 days.
6.3.2 Long Term Solvency Ratio
(i) Gearing Ratio
The gearing ratio measures the percentage of capital employed that is financed by debt and long team finance.
Muhibbah achieved a high gearing ratio of 0.83 compared with industry benchmark about 0.25 on FY2006. An increasing approximately 8.43% against 0.77 on FY2005. The company with its high gearing ratio is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad the turnover is.
(ii) Interest Cover
The interest Coverage Ratio measures how readily the company can pay its interest expense payments on its debt obligations.
A positive sign of Muhibbah by increasing interest coverage ratio about 53.24% on FY2006 (IC - FY2005: 4.35; FY2006: 6.67) and attractive compared with industry benchmark of 4.5. The increase in interest coverage ratio is mainly due to the increase in profits on FY2006. The high ratio indicates that Muhibbah is able to meet its interest expense with its earnings.
6.4 Investment Opportunities
(i) Dividend Yield
The Dividend Yield is compares dividends per share to the market price of common stock, and measures how much of a return one share of stock will bring.
Muhibbah dividend yield for FY2006 is 2.50% which is lower than the industry benchmark of 6%. However an additional about 24.38% if compare to 2.01% on FY2005.
The increased of dividend yield ratio was caused by additional profitability return on FY2006.
(ii) Dividend Cover
Dividend Cover expresses a company ability to pay ordinary dividends to shareholders out of profits earned. It shows how many times the ordinary dividend is covered by profits available.
Muhibbah achieved a better dividend cover with 3.05 on FY2006 compared with industry benchmark of 2. The decreased of 32.23% compared with FY2005 still considered safe for the company. Basically, a ratio of 2 or higher is considered acceptable but anything below 1.5 is risky. If the ratio is under 1 indicates that Muhibbah need to use its retained earnings from a previous year to pay this year's dividend.
(iii) Price-Earning Ratio
The Price-Earning Ratio is a measure of the price paid for a share relative to the income or profit earned by the company per share.
Muhibbah price-earning ratio is 13.09 for FY2006 which is lower than the industry benchmark of 29. This is indicates that the market sentiments lower expectation towards Muhibbah shares. Theoretically the ratio does not take into considerations of the company future prospect. It's usually more useful to compare the company's own historical P/E. Overall Muhibbah has an increasing of 18.35% for P/E ration on FY2006. (P/E - FY2005:11.06; FY2006: 13.09).
7.0 FUTURE PROSPECTS
7.1 Corporate Future Prospects
Muhibbah Engineering (M) Berhad, future prospect looks promising and predicting earnings growing strongly over the next few years due to the higher development spending by the Government on 9th Malaysia Plan, sustained global oil and gas exploration activity and exciting potential in Cambodia.
Future prospects for the group are bright as it has identified RM10bil to RM11bil worth of projects in the infrastructure and construction business. Of this amount, the group has submitted bids worth about RM5bil, comprising mainly overseas jobs. Accordingly, the valued shareholders can expect another meaningful rise in earnings, ahead of the revenue growth in future.
7.2 Stakeholder Perception
In the client perception, Muhibbah is one of the construction companies strong in technical aspect. The quality of their work can be proven through the assessment of quality management system ISO 9001: 2000 and environmental management system ISO 14001: 2004 respectively.
For the subcontractors and suppliers, it is a risk doing business with Muhibbah due to the creditor collection days of 108 days shorter then the debtor collection days of 114 days. The analysis has indicated that Muhibbah would face cash flow problems and this will lead to the difficulties in paying subcontractors from payments received. However, the profit margin increased 27.18% on FY2006 compared with FY2005; shown that the financial of Muhibbah is stable due to profit earned. Thurs, the subcontractors and suppliers should have no problems continuous their business with Muhibbah.
For the financer perception, they should give a good prospect and confident to Muhibbah due to the stable financial background, business opportunities in local and oversea market and the good reputation of the company.
7.3 Investor Perception
Investors are advisable to invest on Muhibbah which the groups given its exposure to the high growth industries like oil & gas and construction within and outside Malaysia. In addition, the airport concessions in Cambodia add a good deal to the Group's bottom line especially with a third airport to be open in late 2008. Besides, an outstanding order book of RM900million; which will last until 2007/2008 with 45% of the contracts from overseas.
Muhibbah's construction and crane businesses contributed only 3-5% Earnings Before Interest and Taxes (EBIT). Thus, the EBIT margins bring down the Group's ROE to a single digit levels. However, in future the ROEs are expected to increase above 10% as expected more earnings. In addition, Muhibbah's EPS at 18 sen in FY2005 and 22.91 sen in FY2006, the group earning grew 27.27%. The dividend payout of 17% in FY2006 and is expected to maintain at least a 15% payout going forward. Given at this scenario, Muhibbah is a good company for long team investment.
7.4 Job Application Perception
Muhibbah is a well managed company with four core business segments; it is in a position to offer a challenging and rewarding career to interested applicants. Career prospects in Muhibbah look bright particularly with the company have diversified itself in the oil & gas construction industry which offer a wide variety of jobs. The Infrastructure Construction and Concession Division will offer more employment opportunities since the implementation of 9MP may allow Muhibbah to participating. Muhibbah is an ISO accredited company; a good company culture will give a good learning and working environment to their staff.
8.0 BIBLIOGRAPHY
. Kaka A, Construction Financial Management (D19CF9) : Module Course Notes.
2. Muhibbah Engineering (M) Bhd, Annual Report 2005
3. Muhibbah Engineering (M) Bhd, Annual Report 2006
4. Bursa Malaysia (Kuala Lumpur Stock Exchange)
http://www.klse.com.my/website/bm/listed_companies/list_of_companies/
5. The Star, Share Market Performance
http://biz.thestar.com.my/marketwatch/charts/
APPENDIX 'A1'
APPENDIX 'A2'
APPENDIX 'A3'
APPENDIX 'A4'
APPENDIX 'A5'
APPENDIX 'A6'
APPENDIX 'A7'
D19CZ Construction Financial Management 2
Choo, Yann Teng - HWU ID : 071297547 Page 1 of 27
