Journey to Wealth
MMHE Holdings - UNDERPERFORM - 28 June 2012
News MMHE announced that it had won fabrication awards worth RM278.0m from Sarawak Shell Berhad (SSB) for the F14/F29 project.
Management guides that the contract will be for a tenure of one year.
Comments Assuming an EBIT margin of 9%, the project will add RM25.0m to MMHE's EBIT earnings.
This is MMHE's first contract win for the year and will lift its order book to RM2.6b (from RM2.4b). Post-novation of the Kebabangan project from Sime Darby (which is about RM1.0b), its order book should increase to RM3.6b.
While we are positive on the win, it is within our new revenue recognition assumption of RM1.6b for FY12.
Outlook Negative on the short term prospects as: 1) its existing yard facilities are constrained by projects that have yet to be delivered (i.e Gumusut-Kakap and Kebabangan); and 2) while there is a certainty of Turkmenistan wins within the year, they are unlikely to be significantly large.
The longer term prospects will improve if the company can enhance its execution track record so that it is more competitive versus the regional fabricators.
Forecast No change to our forecasts at this juncture.
Rating MAINTAIN UNDERPERFORM
Valuation Based on an unchanged targeted PER of 18.0x (which is at a premium against the sector's average PER of 15.0x as the Petronas' patronage guarantees MMHE a certain degree of contract replenishment) on its CY13 EPS of 25.8 sen, we are maintaining our target price of RM4.65.
Risks 1) Higher than expected project wins.
2) Acceleration in project executions.
Source: Kenanga
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