We remain sanguine over MHB’s prospects and current price rally has legs in anticipation of improving 4Q19 results and a meaningful turnaround in FY20-21. Despite surging 58.7% YTD, valuation is unjustifiably trading at 0.58x P/B (66% below peers’ average of 1.73x), supported by solid net cash/share of RM0.32 (37% of share price) and multi-year high RM2.7bn order book (providing earnings visibility for the next 3 years) after securing the Kasawari project coupled with solid tender book of RM13.7bn (signifying greater contract award opportunities). In addition, MHB is likely to enjoy strong parental support (via MISC’s 66% stake) and beneficiary of PETRONAS’ future developments. Technically, the stock is poised for appreciation towards RM0.97-1.02 levels after staging a bullish V-shaped recovery.

Long track record. Malaysia Marine and Heavy Engineering Holdings Berhad (MHB) is a globally trusted marine and heavy engineering solutions provider for a wide range of offshore & onshore facilities and vessels, encompassing six major solutions which are deepwater, fixed platforms, conversion, marine repair, process modules and other services. It has over 40 years of track record of delivering integrated and complex solutions. MHB’s main solutions include a full-fledged Engineering, Procurement, Construction, Installation and Commission contractor (EPCIC) services for oil & gas industry (offshore & onshore) and comprehensive marine services for a wide range of offshore facilities and vessels.

LT uptrend remains intact. The stock has been gyrating within its upward channel after hitting 52-week low of RM0.495 (20 Dec). The recent bounce near the 200W SMA (RM0.845) and the lower-channel line from RM0.83 coupled with a V-shaped recovery in the weekly chart could potentially suggest that the stock could stage a follow through rally towards RM0.92 (50% FR) and RM0.97 (24 July high ) barriers before reaching our LT target at RM1.02 (61.8% FR). Supports are pegged at RM0.845 and RM0.83. Cut loss at RM0.81.

Source: Hong Leong Investment Bank Research - 6 Nov 2019