• We expect MMHE’s earnings to rise substantially in 2H23 as the company will kickstart the construction of CPOC project at the newlyreactivated East Yard.

• Intuitively, HEU segment may only start turning to black when both the East and West yards are occupied with jobs.

• Its orderbook remains healthy at RM7.2bn and it may further rise to an uncharted territory as the company doubles down on getting maiden work orders from Saudi Arabia, offshore windfarm and global FPSO projects.

• Reiterate our BUY call on MMHE with TP RM0.94. Our BUY recommendation is premised on the turnaround in heavy engineering segment. The reactivation of the East Yard will propel a re-rating catalyst on the stock.

Higher Profit Contribution from Heavy Engineering Segment

We expect a stronger 2H23 for MMHE in anticipation of the turnaround in Heavy Engineering segment. This is driven by higher yard utilisation rate as the company is looking to kickstart the construction of CPOC project at the East Yard in 3Q23. That will also mark a new beginning for the longabandoned yard as the company plans to occupy it with fabrication of modular structures for RE offshore windfarm segment.

Riding on Robust Outlook

Despite volatility and correction in oil price, we remain upbeat on the outlook of new development projects as the company is able to maintain its tenderbook at c.RM10bn. Besides that, the company is proactive in reducing its heavy reliance on local fabrication project by penetrating into new market such as in Saudi Arabia. Overall, its near-term earnings outlook is robust with a huge orderbook of c. RM7.2bn. To recap it has 5 on-going projects at various stage of completion. That includes 2 projects that are in early stage of construction (i.e., Kasawari CCS and CPOC projects) whereas the remaining are a mixture of mid and tail-end projects (i.e., Rosmari-Marjoram WHP, Kasawari CPP and Jerun CPP).

Risk to Earnings Forecast is on the Upside

We see upside risk to our earnings assumption coming from (i) Saudi longterm agreement (LTA) project, (ii) offshore windfarm modular fabrication project and (iii) FPSO conversion project. Note that there are possibilities that it could secure some work orders from the global FPSO conversion projects such as from Brazil and Africa region as strong demand had led to increasingly limited available yard capacity. At this juncture, we have not imputed any contract win from this due to lack of visibility surrounding the timing of the project.

Maintain BUY on MMHE with TP of RM0.94

Maintain MMHE as a BUY with TP RM0.94 which implies 0.8x FY23F P/B. We believe this is fair amidst stronger earnings visibility. Key risk to our forecast and recommendation is project cost overruns.

Source: BIMB Securities Research - 14 Jul 2023