News

BHIC announced that its subsidiary BHIC AeroServices Sdn Bhd has received a letters of award (LOA) from the Chief Secretary to the Government of Malaysia for the Integrated Maintenance and Logistic Support Services for 3 units of the Malaysian Maritime Enforcement Agency Dauphin AS365N3 Helicopters.

The contract duration is 3 years, for a total value of RM65.5m.

The award is expected to have positive impact from FY13 onwards.

Comment

We are neutral on the awards. This contract is spread over 3 years and only translate to RM22m per annum or only 3% of our FY13 revenue forecast.

Despite the contract won, BHIC will need to demonstrate a consistent execution to deliver the project on time for any rerating on the stock.

Speed of contract mobilisation of the LCS contract and the ability to translate the huge orderbook of RM10bn to bottomline are the critical factor in BHIC’s earning and valuation. Hence, we choose to be cautiously optimistic going forward and continue to monitor the situation closely.

We maintain that, being one of 7 Petronas licence fabricators, future earnings maybe enhanced by spill over jobs from offshore O&G fabrication work if it is able to show good track record in executing existing jobs and protect margins.

Risks

• Sacrificed profits while in technology transfer phase.
• Delays in contract disbursement.
• Potential write downs from selling chemical tankers.

Forecasts

Maintained.

Rating

HOLD

Positives –

• Sole Royal Navy yard with strong order book.
• Located in a key naval strategic location and O&G yard.

Negatives –

• Earnings drag due to defence technology assimilation.
• Uncertainty from operating chemical tankers.

Valuation

We maintain our HOLD call with an unchanged TP of RM2.64 based on unchanged 12x FY14 EPS of 22 sen/share.

Source:Hong Leong Investment Bank Research - 2 Jul 2013