- We maintain our BUY call on Malaysia Marine & Heavy Engineering Holdings (MMHE) with an unchanged fair value of RM4.30/share based on a FY14F PE of 25x – a 13% premium to Kencana Petroleum’s peak of 22x in 2007.

- We maintain FY14F-FY16F earnings as the earlier load-out problems for the Tapis R enhanced oil recovery (EOR) structure is unlikely to incur any significant costs.

- Business Times reported today that ExxonMobil Exploration and Production Malaysia Inc has announced the successful installation of the Tapis R topsides offshore platform.

- Comprising Tapis Q platform and the larger Tapis R topsides, these structures were built by MMHE on an engineering, procurement and construction contract valued at RM1.6bil. Tapis R weighs 15,000 tonnes and Tapis Q structure at 2,000 tonnes.

- The Tapis Q riser platform was installed in October 2012 while the installation of access bridges, which would link the new Tapis R and Tapis Q platforms with the existing Tapis B platform, will be ongoing with the completion of Tapis R.

- Hence, hook-up and commissioning work will continue over the next few months at the Tapis R platform in preparation for water-alternating-gas injection activities to start in 3Q2014.

- The Edge Malaysia had earlier reported that the Tapis R topside deck had slipped when it was being loaded onto the Dockside vessel in its Pasir Gudang yard in Johor. Hence, the Tapis R topside, which was scheduled to sail off on 2 April 2014, was delayed.

- We understand that more information concerning the Tapis R installation delays may be revealed next week, but the impact of additional costs, if any, is likely to be insignificant.

- Despite this setback, we remain positive on MMHE given the rollout of multiple EOR projects involving high-capex central processing platforms (CPP).

- We had highlighted last week that MMHE is likely to secure the fabrication contract for the jacket of the Bergading CPP with Hyundai Heavy Industries favoured to clinch the first large-scale turnkey platform contract to be awarded out of Malaysia this year.

- The stock currently trades at an attractive FY15F PE of 19x PP 12247/06/2013 (032380) – 24% below SapuraCrest Petroleum’s 2007 peak of 25x. 

Source: AmeSecurities