MMHE; Hold; RM3.47
Price Target: RM3.30; MMHE MK

MMHE is looking to participate in PETRONAS’ massive Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, its Chairman Datuk Nasarudin said after the AGM yesterday. The group currently has RM3.8bn worth of tenders, of which more than RM1bn are overseas, mainly in the Asia-Pacific and Middle Eastern regions.

While opportunities from RAPID project remain promising, EPCC contract awards may not come so soon given that PETRONAS has yet to achieve final investment decision which is expected by 1Q14 after delays arising from the water supply issue. Also, project reassessment by oil majors globally due to lower oil prices of late may result in delays in contract awards as well.

Strong order book replenishment remains critical for MMHE. Its current order book of RM2.3bn (as at Mar13) hardly provides any visibility beyond FY13 as most of the projects are likely to be completed by end-13. We believe that MMHE needs more substantial order wins to sustain its earnings; we assumed RM2bn and RM2.5bn new wins for FY13 and FY14, respectively.

We believe that there is a lack of re-rating catalyst for MMHE in view of the poor earnings visibility. While we are positive on the management’s commitment to improve project execution, which had affected its profitability, the result could take some time to be reflected in its earnings. Maintain our HOLD rating with RM3.30 TP pegged to 22x FY14 EPS.

Source: HwangDBS Research - 19 Jun 2013