Results

• Above expectation but within consensus: YoY, 4QFY15 core PATAMI stood at RM57.3m, bringing 12MFY15 PATAMI to RM86.5m, making up 197% and 99% of our earnings and consensus estimates

Deviations

• Higher than expected margins from the Marine segment derived from LNG, Rigs, FPSO and FSU work.

Highlights

• 4QFY15 revenue rose 41.9% YoY driven by strengthening of USD against MYR for some projects and higher work billing.

• Offshore business turned to profit of RM25.6m in Q415 from a loss in the preceding quarter due to reversal of Q3 provision for some project post sail-away and lower project cost provision. Marine segment posted YoY surge in operating profit due to higher work value per vessel for the projects executed.

• Malikai TLP is 91% completed with its topside successfully integrated onto the hull while Besar is also close to completion at 80%. SK316 CPP and WHP have sailed away on September 2015. The company is pursuing variation orders claims for Tapis and Malikai projects. Successful claims will help to boost earnings. We have not factored in any variation orders in our earnings forecast.

• Latest orderbook stood at RM1.1b, similar to the level seen in the preceding quarter. MHB is bidding circa RM8.4bn worth of contracts whereby the group is looking to secure approximately 50% of it in 2016 and the remaining in the year after. Focus would still be directed to RAPID prefabrication contracts which would be in smaller quantities (RM200-300m each) in view of challenging upstream outlook.

• Industry outlook for fabrication remains weak as the plunge in oil price has delayed capex spending and caused margin squeeze due to intense competition (especially from Korean shipyards). Orderbook replenishment remains as our major concern on the company in anticipation of significantly slower project tenders moving forward.

Risks

• Project execution risk and orderbook replenishment risk.

Forecasts

• FY16 earnings tweaked slightly higher to RM78m from RM77m post housekeeping adjustments. FY17 core net profit is introduced with the assumption of RM1.0bn offshore contract replenishment and lower Marine revenue of RM350m per annum in view of lower high value vessel to be serviced post its LNG projects.

Rating

HOLD

Positives

• Room to enhance yard capacity and capability. Net cash balance sheet.

Negatives

• History of delivery delays and earnings disappointments. High contract replenishment risk due to oil price slump.

Valuation

• Maintained HOLD with TP adjusted from RM1.10 to RM0.94 based on 0.6x BV (versus 0.7x previously) due expectation of weaker orderbook replenishment.

Source: Hong Leong Investment Bank Research - 4 Feb 2016