News

• MHB has secured contracts worth RM324m which involve: i) fabrication of the Baronia CPP; ii) facilities improvement project for Petronas Carigali; iii) vessel repair and dry-docking for LNG carriers; and iv) vessel conversion to FSO facility. Financial Impact

• Including these new contracts, year to date contract win is close to RM400m. Total orderbook expanded from RM1.2bn in 1Q15 to RM1.5bn currently.

• This is inline and will be part of our orderbook replenishment as we have factored in RM1.5bn orderbook win in FY15 versus year to date win of RM400m.

Pros/Cons

• We are positive on the contract win giving the concern on the shrinking orderbook.

• MHB is bidding for more than RM7bn worth of contracts, majority from overseas (RM4.5bn) and remaining from local (RM2.6bn). Oversea market to focus is Middle East, Canada and Africa. Potential local contracts comprise of RM1.5bn Kasawari CPP contracts and some fabrication jobs from RAPID. The company is positive to secure 1 or 2 bigger projects by later this year or early 2016.

• Near term outlook for fabrication remains uncertain as the plunge in oil price has delayed capex spend and margin squeeze due to intense competition (especially from Korean shipyards). Utilisation rate for the yards has fallen from 75% to 50% given the lack of new bigger job order as existing old projects completed.

• We maintain our view that any contract win going forward will only be contract replenishment for MHB to sustain but not boost revenue going forward.

Risks

• Execution risk,
• Orderbook replenishment failure,

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Room to grow yard capacity and capability.

Negatives

• History of delivery delays and earnings disappointments. Difficult to source engineering and project talents. Intense competition lead to margin compression.

Valuation

We maintained HOLD call with TP unchanged at RM1.33 based on 0.8x BV.

Source: Hong Leong Investment Bank Research - 16 Jun 2015