Highlights

Petronas has awarded the engineering, procurement, construction, installation and commissioning (EPCIP) contract for the development of two gas fields in Block SK316 to Technip-MMHE joint venture.

Block SK316 is located approximately 180km North of Bintulu, Sarawak.

Comments

We view the contract award positively as it is critical to replenish MHB’s shrinking orderbook which has decreased to RM1.8bn (~55% from TLP Malikai project) in June 13 from RM2.3bn in Mar 13. The other bidders for the job were Berlian MCDemott and Saipem.

The two gas field projects will comprise a central processing platform and a bridge-linked wellhead platform. We estimated the contract to worth around U$1bn pending official announcement from MHB.

We anticipated the JV split to be 50:50 which suggest MHB portion at around US$500m or RM1.6bn. This will increase its current orderbook from RM1.8bn to RM3.4bn.

However, this contract win will only replenish dwindling orderbook to sustain but not boost revenue going forward. In our assumptions, we have factor in RM2.5bn and RM3bn orderbook replenishment for FY14 and FY15 respectively.

Risks

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

Forecasts

Unchanged pending official and detail announcement from 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 with unchanged TP of RM3.77 based on an unchanged multiple of 20x on FY14 EPS of 18.8sen/share.

Source: Hong Leong Investment Bank Research- 30 Sep 2013