Results

Below expectations: 1Q13 PATAMI dropped 35% yoy to RM51m, making up 16% and 18% of HLIB and consensus full-year estimates, respectively.

Deviations

Profit has yet to be recognised for the Malikai project due to its early stage of fabrication.

Dividends

None.

Highlights

1Q13 revenue increased by 39% yoy and 8% qoq due to higher recognition of projects such as Telok Gas Development, recently-awarded Damar Platform projects and TLP Malikai projects.

However, operating margin fell from 13% in 1Q12 to 6% in 1Q13 mainly attributed to the lower operating profits from offshore fabrication unit as profit has yet to be recognised for the Malikai project due to its early stage of fabrication. This reiterates our conservative view on margins and downgrade detailed in our 4Q12 earnings evaluation dated 22 Feb 2013. We anticipated margin pressure from the competitive bid for Malikai and the Novated Kebabangan.

Marine business segment posted profitability improvement through better pricing and increased scope of works from the vessels being repaired.

During the quarter, the company successfully completed and delivered the OSX-3 FPSO External Turret and the Telok-B Jacket. In order to lower cost, MHB has also entered into long-term agreements with key subcontractors and vendors to create strategic alliances.

Risks

• Problems sourcing O&G knowledge workers for growth.
• Execution risk and orderbook replenishment failure.

Forecasts

Top line trimmed 12% and 13% to RM3.5bn and RM3.7bn, and PATAMI cut by 11% to RM275m and RM316m in 2013 and 2014 respectively, to reflect the disappointing results and our conservative stance on Technip’s ability to bring more jobs to MHB.

Rating

HOLD

• Positives –
  • First bite of the cherry for local oil and gas projects. Room to grow yard capacity and capability.
• Negatives –
  • History of delivery delays and earnings disappointments, Difficult to source engineering and project talent.

Valuation

Maintain our HOLD rating on the stock with a lower TP of RM3.95 based on an unchanged multiple of 20x and a lowered FY14 EPS of 19.8sen/share.

Source: Hong Leong Investment Bank Research - 22 May 2013