MMHE secured a 6-year frame agreement from Petronas for the provision of engineering, procurement and construction (EPC) of fixed offshore structure works. Overall, we are neutral to this news as MMHE has already been one of the main fabricators for Petronas’ Petroleum Agreement Contractors (PACs). Subject to mini bidding, MMHE will have to compete with other fabricators for actual work orders. Margins could still be under pressure given that Petronas is still in a tight cautious spending mode. All in, no changes to our estimates and maintain our HOLD rating with unchanged TP of RM0.55 (0.35x FY19 PBV).

NEWSBREAK

MMHE secured a frame agreement from Petronas for the provision of engineering, procurement and construction (EPC) of fixed offshore structure works. The 6-year agreement consists of two packages, which are Package A - Fixed offshore structures of weight exceeding 7.5k mt and Package B - Fixed offshore structures of weight not exceeding or equal to 7.5k mt.

HLIB’s VIEW

Neutral stance. Overall, we are neutral to this news as MMHE has already been one of the main fabricators for Petronas’ Petroleum Agreement Contractors (PACs). Such agreement is similar to the long term offshore agreement (LTA) signed with Saudi Aramco earlier on.

Mini bidding required. Package A & B are applicable to projects being managed by Petronas’ PACs for all oil & gas blocks within Malaysia and are subjected to mini bidding. MMHE will have to compete with other fabricators such as Sapura Energy, KKB Engineering, Muhhibbah and Brooke Dockyard for actual work orders. Margins could still be under pressure given that Petronas is still in a tight cautious spending mode.

1-2 CPPs and 5-6 WHPs in 2019. According to Petronas Activity Outlook 2019-2021, Petronas has indicated fabrication work of 1-2 wellhead platforms (WHP) and 1-2 central processing platforms (CPP) to be awarded this year and subsequently increasing to 6-13 WHPs in 2020. The mini bids will be out by batches dependening on PACs working schedule.

Forecast. We make no changes to our earnings forecasts as we have already imputed RM800m and RM1.0bn orderbook replenishment assumptions in FY19-20.

Maintain HOLD, TP: RM0.55. Our TP remains unchanged at RM0.55 pegging to 0.35x FY19 PBV. All in, maintain HOLD rating as near term earnings weakness is likely to be cushioned by strong balance sheet (net cash position of RM0.37/share).

Source: Hong Leong Investment Bank Research - 9 Jan 2019