Muhibbah Engineering (KLSE:MUHIBAH): A Compelling Case for Undervaluation Amid Sectoral Tailwinds and Operational Turnaround

Valuation Metrics Suggest Significant Undervaluation

Muhibbah Engineering (KLSE:MUHIBAH) presents a compelling case for undervaluation, as evidenced by its financial metrics. As of August 28, 2025, the company reported a trailing price-to-earnings (PE) ratio of 5.19 and a forward PE ratio of 6.44, significantly below the average for the Malaysian construction sectorMuhibbah Engineering (M) Bhd. (KLSE:MUHIBAH) Statistics^[1]. Its enterprise value-to-EBITDA (EV/EBITDA) ratio of 4.60 and price-to-sales (PS) ratio of 0.26 further underscore its discounted valuation relative to peersMuhibbah Engineering (M) Bhd. (KLSE:MUHIBAH) Statistics^[1]. Despite a robust net income of MYR 84.55 million in the last 12 months, translating to an earnings per share (EPS) of 0.11, the stock trades at a market cap of MYR 424.04 million—well below its enterprise value of 1.22 billionMuhibbah Engineering (M) Bhd. (KLSE:MUHIBAH) Statistics^[1]. This disconnect suggests the market may be underestimating the company's earnings potential and asset base.

Sectoral Tailwinds: Malaysia's Infrastructure Boom

The Malaysian infrastructure sector is experiencing a structural upturn, driven by government-led projects and private-sector investments. According to the Malaysia Construction Industry Databook, the sector grew by 6.6% in real terms in 2023, with forecasts projecting a 6.1% annual growth rate through 2029Malaysia Construction Industry Databook - Market Size & Forecast by Value & Volume^[2]. Key projects such as the East Coast Rail Link (ECRL), RTS Link, and MRT extensions are central to this expansion, while public-private partnerships (PPPs) under the 2030 Master Plan aim to attract RM78 billion in investmentsAnalisis Pasaran Pembinaan Malaysia | CIDB HQ^[3]. Additionally, private-sector demand for industrial infrastructure—logistics warehouses, data centers, and semiconductor foundries—is surging, aligning with Muhibbah's core competencies in construction and engineeringAnalisis Pasaran Pembinaan Malaysia | CIDB HQ^[3].

Operational Turnaround: Contract Wins and Execution Momentum

Muhibbah has demonstrated tangible progress in reversing its fortunes. In 2024 alone, the company secured RM479 million in new contracts, including a Petronas extension and the Lumut Maritime Terminal expansion, pushing its year-to-date (YTD) contract wins to RM652 millionMuhibbah Engineering (M) Bhd. (KLSE:MUHIBAH) Statistics^[1]. As of August 2024, its order book stood at RM1.6 billion, surpassing pre-pandemic levels and reflecting strong execution in the Gansar project for Petronas CarigaliAnalisis Pasaran Pembinaan Malaysia | CIDB HQ^[3]. Notably, the construction division turned a pretax profit of RM40 million in Q2 2024, a stark improvement from a RM1 million loss in the same period of 2023Muhibbah Engineering (M) Bhd. (KLSE:MUHIBAH) Statistics^[1]. This turnaround is further supported by a robust cash position and a net gearing ratio of 0.05 times, enabling the company to pursue high-margin projects and reward shareholders through dividends (5.31% yield)Malaysia Construction Industry Databook - Market Size & Forecast by Value & Volume^[2].

Strategic Reinforcements: Management and Governance

Recent management changes, including the appointment of Tan Sri Dato' Seri Ahmad Ramli Bin Haji Mohd Nor to the Nominating Committee, signal a renewed focus on governance and strategic directionMalaysia Construction Industry Databook - Market Size & Forecast by Value & Volume^[2]. The company also submitted an errata to its FY2024 annual report to address discrepancies, emphasizing transparencyAnalisis Pasaran Pembinaan Malaysia | CIDB HQ^[3]. These steps, combined with a debt-to-equity ratio of 0.42 and a return on equity (ROE) of 8.22%, highlight a disciplined approach to capital allocation and risk managementMuhibbah Engineering (M) Bhd. (KLSE:MUHIBAH) Statistics^[1].

Risks and Considerations

While the fundamentals are encouraging, investors should remain cautious of short-term volatility. The stock has declined 33.33% over the past 52 weeks, reflecting broader market skepticism or sector-specific challengesMalaysia Construction Industry Databook - Market Size & Forecast by Value & Volume^[2]. However, the company's growing order book, sectoral tailwinds, and improved operational performance suggest this discount may not be sustainable.

Conclusion: A High-Conviction Buy

Muhibbah Engineering's undervalued metrics, coupled with a robust project pipeline and favorable sectoral trends, position it as a high-conviction opportunity. With a forward PE of 6.44 and a dividend yield of 5.31%, the stock offers both income and growth potential. As Malaysia's infrastructure sector accelerates and the company executes on its order book, a re-rating appears inevitable. For investors seeking exposure to a turnaround story in a high-growth industry, Muhibbah Engineering warrants serious consideration.