• We think MMHE’s expansion in marine business will reduce its risk exposure towards cyclical oil development projects; and we believe this has been largely overlooked.
   
• MMHE’s orderbook could be boosted by potential roll-out of fabrication jobs, but we remain cautious that it may face further delay amidst uncertainties in oil price.

• We are optimistic that MMHE will return to profitability from FY21F onwards driven by structural income growth from new dry dock DD3 beginning 1Q21.

• We upgrade MMHE to BUY (from HOLD) with unchanged SOP derived TP of RM0.42, implies FY21F P/B of 0.3x. We see upside catalysts outweighing downside risk at current price levels

Marine segment to drive earnings FY21F onwards

We reiterate our view that MMHE’s marine business will be the key earnings driver moving forward leveraging on new contribution from its DD3 which is expected to begin commercial operation in 1Q21F. With DD3, we think MMHE’s fundamental will be stronger as it will be less dependent on cyclical development projects.

Potential roll-out of fabrication works

Upstream recently reported that Petronas may soon open a tender for fabrication works of about 20 minimum facility platforms under “Design One, Build Many” initiatives. While this could benefit MMHE in near term, we remain cautious as there is no guarantee that Petronas will commit for the project amidst uncertainties in oil price. Notwithstanding, we remain sanguine with MMHE as its orderbook remains strong at RM2.6bn (as at June 2020) which provides revenue visibility until 2023. Its tenderbook currently stands at RM12.5bn which are made up mainly from foreign projects.

Keep earnings forecast unchanged

We maintain our FY20-22F earnings forecast. We expect MMHE to record core loss of RM25m in FY20 before turning to profit of RM13m/RM37m in FY21/FY22. This is driven by (i) earnings growth from DD3 and (ii) strong orderbook of RM2.6bn and potential new order from Aramco/windfarm project. To recap, we have assumed an annual orderbook replenishment of RM600m/RM1bn in FY21F/FY22F.

Upgrade to TRADING BUY

Upgrade MMHE to BUY (from HOLD) with unchanged TP of RM0.42. We like the stock due to (i) its market leadership in local offshore development projects backed by Petronas’ stewardship; (ii) sizable orderbook of RM2.6bn; and (iii) strong balance sheet with net cash position of RM432m or RM0.27/share (as at June 2020).

Source: BIMB Securities Research - 19 Oct 2020