- We maintain our HOLD rating on Malaysia Marine and Heavy Engineering (MMHE) with a lower fair value of RM1.00/share, pegged to a lower PE of 13x, to reflect contract flow uncertainties in the face of a weak fabrication market amidst the protracted low oil price environment.

- We visited MMHE’s West yard with a group of analysts. The following is our key takeaways:-

1) The SK316 central processing platform (CPP) and wellhead platform (WHP) structure has been successfully sailed away on 1 September 2015. The only works left is the hook-up and commissioning (HUC) of the structure. With the completion of SK316, the East yard is now essentially unutilised.

2) The Malikai tension leg platform (TLP) deepwater project is now 84% completed. The super-lifting of the topside structure is completed. The load out of the structure is expected to be done by mid-November 2015, with the sail away targeted for 1QFY16. MMHE will also be doing the HUC works for Malikai. The group has made additional cost provisions for the Malikai, of which the group is pursuing compensation from its client.

3) The Besar-A WHP/jacket and North Malay Basin Bergading structures are progressing as scheduled. The jacket for Besar-A has been loaded out while the topside structure is 50% completed, and is targeted for delivery by October 2015. NMB Bergading is currently at the steel cutting stage and is targeted to be delivered in April 2016.

4) MMHE recently won a contract award for RAPID package-5 project for the fabrication of pipes amounting to ~RM100mil which was awarded by Toyo Engineering.

5) The two Goliath cranes that are due for completion in December 2015 and March 2016, respectively, will generate an estimated savings of RM8-12mil per year once operational.

- MMHE currently has a tender book of RM7bil, of which RM4.5bil are for overseas projects and the rest local. The bulk of the domestic tenders are made up of the Kasawari central processing platform (CPP) project, potentially worth RM1.5bil, as well as onshore subcontract works for RAPID.

Source: AmeSecurities Research - 3 Sep 2015