- We maintain our HOLD rating on Malaysia Marine and Heavy Engineering (MMHE) with an unchanged fair value of RM1.30/share, based on an FY15F PE of 16x.

- To-date, MMHE has secured RM393mil worth of contracts. These comprise, among others, the fabrication of substructures for the Baronia CPP-B project, Kanowit hook-up and commissioning (HUC) job and a recently awarded Facility Improvement Project, which includes HUC, major construction works and structural/mechanical retrofit for a two-year contract period with a one-year option for extension.

- Its marine segment remains robust with dry-docking, repair and refurbishment works. Its marine yard utilisation is currently at 95%. The group was also recently awarded a contract for the conversion of an FSO which will be deployed for a full-field development project for the North Malay Basin.

- MMHE’s order book stood at RM1.2bil as at 31 March 2015. The Malikai tension leg platform (TLP) is 80% completed and is expected to be handed over by the end of the year. The 26,000-metric tonne project is currently in the critical super-lift stage, which is expected to be completed by August. The SK316 CPP and wellhead platform (WHP) is expected to be loaded out in 3QFY15F.

- MMHE currently has a tender book of RM7.2bil, of which RM4.5bil are for overseas projects and the rest local. We understand that the overseas tenders consist of onshore fabrication and offshore projects in the Middle East, Africa and Canada, which involve mostly subcontracts and JVs. These jobs are expected to be awarded next year.

- We believe the bulk of the domestic tender is made up of the Kasawari central processing platform (CPP) project, potentially worth RM1.5bil, as well as onshore subcontract works for the refineries and crackers for RAPID, expected to be awarded at the end of the year at the earliest.

- With the contributions of SK316 and Malikai coming through this year, the management expects FY15F earnings to be comparable to last year’s. In addition, FY16F earnings are expected to be sustained by the smaller jobs, as well as any RAPID contracts secured this year.

- The stock now trades at an FY15F PE of 16x.

Source: AmeSecurities Research - 11 Jun 2015