We are positive on the Kasawari Gas Development EPCIC project win as it showcases MMHE’s ability to win big local project. This is by far the largest project (in terms of weight) that MMHE has ever secured and will enlarge its outstanding orderbook of RM864m as of 1Q19 by 1.3-1.9x assuming MMHE’s portion at RM2-2.5bn with the anticipation of TechnipFMC being its partner. All in, we maintain our HOLD rating with higher TP of RM0.89 (0.6x FY20 PBV) after adjusting FY20-21 earnings by 9%-8%.

NEWSBREAK

MMHE announced that it has been awarded a contract from Petronas Carigali Sdn Bhd (PCSB) to undertake the engineering, procurement, construction, installation and commissioning (EPCIC) works for the Kasawari Gas Development project. The EPCIC contract includes the construction of 47,000 tonnes of Central Processing Platform (CPP), 8,600 tonnes of Wellhead Platform (WHP) and a Flare Structure, together with two bridges linking the CPP to the WHP and the Flare Structure. The contract also involves the transportation and installation of an 85km pipeline linking the Kasawari CPP to the existing E11R-A platform.

HLIB’s VIEW

By far the largest project. We are positive on the announcement as it showcases MMHE’s ability to win big local projects. However, this is not entirely surprisng as MMHE has been the frontrunner of this tender which has been delayed multiple times. This is by far the largest project that MMHE has ever secured. Putting things into perspective, the Kasawari project (both CPP and WHP) is weighted 55.6k tonnes. This is 1.4x size of 39k tonnes Gumusut-Kakap (GK) Semi-Submersible Floating Production System (FPS) project and 2x size of 27.5k tonnes Malikai Tension Leg Platform (TLP) project, which are valued at RM5bn and USD775m respectively. While the value of this contract is not disclosed, we reckon that the entire project could potentially worth RM3-4bn which is relatively smaller than in terms of capex/tonnes given the cost optimisation amidst the industry downturn in the past few years.

TechnipFMC could be the partner. As reported by Upstream in June this year, we believe MMHE is likely to execute the project together with its potential partner, TechnipFMC. However, instead of split the work via a 50:50 JV like Malikai TLP project, MMHE, in our view, could lead the project this round. Therefore, despite the total value of the project could worth RM3-4bn, we estimate that MMHE’s portion could worth RM2-2.5bn. With that, MMHE’s orderbook could be enlarged by 1.3x-1.9x (vs RM864m as of 1Q19).

Forecast. We reckon that this project will have minimal impact to earnings performance in FY19 as first steel cut is likely to happen next year. Thus, we increase our FY20-21 earnings by 9%-8% assuming the project is executed in 3 years’ time.

Reiterate HOLD, higher TP: RM0.89. Post earnings adjustment, we increase our TP to RM0.89 (from RM0.75) after rolling forward our valuation base year to FY20 and pegging to higher multiple of 0.6x FY20 PBV (from 0.5x previously) in view of better earnings certainty. However, we are keeping our HOLD rating on the counter given that share prices have gained 55% YTD gain suggesting most positives have been priced in.

Source: Hong Leong Investment Bank Research - 24 Jul 2019