Although short to mid-term outlook remains murky amid the disruption in work orders during the MCO period and potential tenderbook (amounted to RM17bn) destruction during this cyclical downturn, MHB’s orderbook of RM2.7bn (to sustain works for the next 2-3 years) and net cash of RM440m (28sen/share or 55% of marketcap) could provide ample financial muscle to sail through FY20/21 relatively unscathed. Valuation is also undemanding at 0.34x P/B (32% below 5Y mean 0.5x), supported by attractive 5.9% DY and strong parental support (via MISC’s 66% stake) coupled with potential beneficiary of PETRONAS’ future developments. Also, a privatisation possibility, based on current depressed price. Technically, the stock is poised for a bullish triangle breakout soon to spur prices further towards RM0.56-0.66 territory.

A globally trusted energy industry and marine solutions provider. Armed with more than 40-year track record, MHB is Malaysia’s largest and most sophisticated offshore fabrication operator engaged in: (i) engineering & construction; and (ii) marine repair & conversion works. The group is indirectly owned by PETRONAS via its ownership of MISC (66.5%); a unique distinction in the industry, as almost all of the reputable regional yards are independently run. We believe such parentage tends to offer an advantage over PETRONAS related tender bids.

Pending a bullish triangle breakout. Following the 74% collapse from 52-week high of RM0.97 (8 Jan) to a RM0.255 low (18 Mar), MHB is currently hovering above the support trendline and key 20/D/30D/50D SMAs. Supported by improving technical indicators and robust volume of 23m shares yesterday (13.5x higher than 90D average) coupled with the recent rebound in oil prices, MHB is envisaged to stage a bullish triangle breakout soon. Breaking the downtrend line hurdle at RM0.515 will spur prices towards RM0.56 (19 May high) and RM0.61 (50% FR) before hitting our LT target at RM0.66 (30W SMA) levels. Supports are pegged at RM0.46 (30D SMA) and RM0.44 (50D SMA). Cut loss at RM0.435.

Source: Hong Leong Investment Bank Research - 10 Jun 2020