The additional profitability return on FY2006. Dividend

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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. 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.

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).

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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.

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. 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.

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.


1. 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

Categories: Financial Management


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