Journey to Wealth
MMHE Holdings Bhd - 2Q12 below expectation
Period 2Q12
Actual vs. Expectations
The net profit of RM55.3m was below expectations.
This resulted in 1HFY12 net profit (RM133.6m) accounting for only 38% of ours (RM349.5m) and the consensus' estimate (RM347.3m).
The main variance with our estimate was the lower-than-expected margin from the offshore division.
Dividends No dividend was declared.
Key Results Highlights
QoQ, despite a 45% increase in revenue (RM965.7m), the net profit (RM55.3m) was down by 29%, mainly due to lower-than-expected operating margins in the offshore division and 2) the high-base effect of excess margins recognised for projects like Tapis and Teluk that started to contribute to profits in 1QFY12.
YoY, net profit dipped 30%, again, mainly due to lower margins from the offshore division. Lower Joint Company contributions were also the other driver.
As a result, 6MFY12 net profit (RM133.m) was down 36% from 6MFY11 net profit.
Outlook Order book now stands at RM2.7b (from RM2.3b in Mar 2012).
We are still negative on the short term prospects as 1) MMHE's existing yard facilities are constrained by projects that have yet to be delivered (i.e Gumusut-Kakap and Kebabangan)
There is a relative certainty of Turkmenistan project wins within the year but they are unlikely to be significantly large.
Malikai project is also a likely win but it will potentially be of lower contribution as it is to be executed via a JV with Technip.
Highly susceptible to a de-rating in the event MMHE drops out from FBMKLCI Index due to its low weighting (~0.48%).
Change to Forecasts
We are trimming our FY12-14 earnings by 14.4%, 9.2% and 7.4% respectively on the back of lower contracts wins going ahead.
Rating MAINTAIN UNDERPERFORM
Valuation Our target price has been reduced to RM4.22 based on 18x targeted PER on our revised CY13 EPS of 23.4 sen.
Risks Risks to our call are 1) higher-than-expected project wins and 2) acceleration in project executions.
Source: Kenanga
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