Muhibah- next upleg around the corner?

Background

Muhibbah Engibeering (M) Bhd ('Muhibah') is involved in infrastructure construction, cranes construction & ship repair.

Recent Financial Results

Muhibah's net profit increased by 100% q-o-q or 244% y-o-y to RM18.2 million despite the decline in its turnover of 5% q-o-q or 4% y-o-y to RM394 million. The improved bottom-line came mainly from the infrastructure construction & ship repair divisions.


Table 1: Muhibah's past 8 quarterly results



Table 2: Muhibah's segmental results for QE31/3/2011 & QE31/3/2010 compared



Chart 1: Muhibah's last 12 quarterly results

Financial Position

Muhibah's financial position as at 31/3/2011 is on a border line, with tight liquidity as reflected by a current ratio of 1.06 times and elevated leverage (a debt to equity ratio at 0.76 time ).

Valuation

Muhibah (closed at RM1.76 yesterday) is now trading at a PE of 14.9 times (based on last 4 quarters' EPS of 11.78 sen). At this PE multiple, Muhibah is deemed fully valued.

Technical Outlook

Muhibah broke above its triangle formation at RM1.75 yesterday. See Chart 2. In addition, Muhibah has earlier broken above its long-term downtrend line at RM1.70. There is one more hurdle to cross- the parallel line(P1-P1) to the uptrend line (PP) at RM1.82-1.83. See Chart 3 below. If Muhibah can break above the last hurdle, its next upleg should begin. First resistance is at RM1.93 (the high recorded in January this year) and thereafter at horizontal lines RM2.00, RM2.50 & RM3.00.


Chart 2: Muhibah's daily chart as at June 10, 2011_3.00pm (Source: Quickcharts)



Chart 3: Muhibah's weekly chart as at June 10, 2011_3.00pm (Source: Quickcharts)

Conclusion

Although trading at a high PE multiple & having a relatively weak financial position, Muhibah is a stock worth tracking. Its financial performance has improved steadily over the past 4 quarters. More improvement is likely given the activity in the construction and O&G sectors. The main selling point of this stock is the improvement in the technical outlook. The stock is almost at the point of starting its next upleg.