• We are sanguine with MMHE’s turnaround story and we believe it is able to record sustainable profit moving forward banking on (i) strong orderbook of RM6.6bn, (ii) improved project delivery via digitalized procurement system and enhanced in-house fabrication capabilities,  and (iii) higher income from additional drydocking capacity.

• Despite its success stories in local O&G projects, we believe it has room to grow especially in becoming a reliable fabricator in global O&G and RE supply chain. Foreign jobs that formed a large chunk of its RM20bn tenderbook is a testament of its mission to become a  global player.

• Reiterate our BUY call on MMHE with an unchanged SOP-derived TP  of RM0.78 which implies 0.7x FY23F P/B.

Upstream Projects On the Rise

We are optimistic with MMHE’s earnings outlook given strong appetite by  O&G companies to pursue new development projects. To recap, MMHE  has secured 2 fabrication projects YTD namely Rosmari-Marjoram and  Kasawari CCS from Shell and Petronas respectively. Both projects have a  combined contract value of c.RM5bn. Moving forward, we expect MMHE  to be the front runner to secure Jerun K and Lang Lebah CPP projects which will be rolled out in 2023-2024 by SapuraOMV and PTTEP respectively.

Fabrication of RE Structure is the Real Game-Changer

MMHE has been pursuing opportunities in RE project for the past few years but to no avail. Nonetheless, we believe it is going to change soon. We understand from the management that it is in advanced discussion with some prospective client among European RE developer who is interested in a ‘capacity booking’ arrangement with the company. The potential clients are apparently looking for a yard in this region as a substitute to Chinese yard amidst elevated geopolitical tension between US and China.  If this is realised, the company will reactivate its East Yard to cater for fabrication of lighter structures that are required in RE projects. The board has also approved some capex that will be required to revive the yard.

FPSO Conversion Project is Less Exciting

On the marine side, the outlook of local FPSO conversion project is less exciting as the continuity of FPSO Limbayong remain ambiguous. As such,  the company is looking to bid for FPSO project outside Malaysia to improve the margin of marine business (MBU) segment. This include FPSO projects in Brazil and Africa which are booming. We think it has a fair chance to secure some work orders from this given that many Singaporean yards are quite occupied with existing orderbook. However, we do not take into account this project into our forecast yet considering its limited exposure to global FPSO projects.

Reiterate a BUY call on MMHE with TP of RM0.78

Maintain MMHE as a BUY with unchanged TP of RM0.78 which implies 0.7x  FY23F P/B. Key risk to our forecast and recommendation is project cost overruns.

Source: BIMB Securities Research - 8 Dec 2022