MMHE; Fully Valued; RM3.76
Price Target: RM3.20; MMHE MK

PETRONAS announced yesterday that a series of agreements has been signed between PETRONAS and Brunei petroleum authorities during the Annual Malaysia-Brunei Leaders’ Consultation held in Bandar Seri Begawan over the weekend:

i) PetroleumBRUNEI to acquire 3% stake each in PETRONAS’ Canadian shale gas asset and the Pacific Northwest LNG facility;

ii) Head of Agreement to formalise a unitisation arrangement for Malaysia’s Kinabalu West NAG field and Brunei’s Maharajalela North Panel field;

iii) Head of Agreement for joint development of Malaysia’s Gumusut/Kakap field and Brunei’s Geronggong/Jagus-East field;

iv) 2 production sharing contracts awarded by PetroleumBRUNEI to PETRONAS and Shell for Brunei’s offshore Blocks N and Q;

v) Memorandum of Understanding between MMHE and PetroleumBRUNEI’s PB Services Sdn Bhd to formalise a 30:70 JV to undertake engineering and fabrication sevices.

MMHE’s penetration into the Brunei O&G market could help to diversify its heavy concentration on the Malaysian market which has been attracting stiff competition in recent years. Nevertheless, the Brunei contract awards may only come at a later stage upon formalisation of the agreements. We have imputed RM2.5bn order win p.a. for FY14 and FY15. We believe that a stronger order book replenishment is still required to sustain MMHE’s earnings given that most of its projects will be completed by year-end.

We maintain our Fully Valued rating and RM3.20 TP (based on 22x FY14 EPS) on MMHE. In our view, current valuation of 26x FY14 EPS appears excessive given the weak earnings visibility and slow order book replenishment.

Source: HwangDBS Research - 10 Dec 2013