Results

• Below Expectation: FY14 core PATAMI surged 53% yoy to RM179m, making up 90% of HLIB and consensus full-year estimates respectively.

Deviations

• Due to seasonally weaker margin and lower contribution from its associate, Perdana Petroluem (early dry-docking for 3 OSVs) in 4Q14.

Dividends

• Declared 3.5 sen per share bringing YTD to 7 sen (vs. our forecast of 6.5 sen).

Highlights

• 4QFY14 revenue surged by 27% yoy and 2% QoQ due to higher value of work orders received and performed for new hook-up, commissioning contracts that were awarded in May 13.

• However, core profit fell 46% QoQ mainly due to seasonally weaker margin with fixed operating cost incurred despite lesser work for vessels in monsoon. Its associate Perdana also register lower contribution due to early dry-docking for 3 OSVs.

• In view of the lower oil price and cost cutting from E&P players, we expect further delay of Petronas’ RM1.4bn HUC contract in FY15 and only picking up in FY16.

• Latest orderbook is about RM4bn which will last at least until 2018 and Dayang is tendering RM800m contract. To note, we have assumed zero contract replenishment in FY15 and FY16, any contract win will provide upside to our forecasts.

Risks

• Political risk; Delays in contract disbursement; and Execution risk.

Forecasts

• FY15 earnings reduced by 14% after factored in lower work orders but maintain FY16 forecast.

Rating

HOLD

Positives

• solid track record and expertise in HUCC.
• captive market for topside maintenance.

Negatives

• difficulties in sourcing O&G engineering talent.

Valuation

We maintain our HOLD call with TP adjusted from RM2.86 to RM2.87 after rolled forward valuation to FY16 based on unchanged 11x P/E.

Source: Hong Leong Investment Bank Research - 26 Feb 2015