Unimpressive showing. MMHE's 1HFY12 results were below expectations, making up only 36% and 38% of consensus and our FY12 forecasts respectively. We believe the company had continued to underperform due to the lack of new and high margin contracts from Petronas and its Production Sharing Contract (PSC) contractors. Its 2QFY12 revenue surged 45.2% q-o-q to RM965.7m owing to stronger revenue arising from ongoing progress at the FSU Lekas contract and the securing of more LNG vessel repair works. However, its 2QFY12 EBIT of RM53.6m was 37.4% lower q-o-q as the bulk of its offshore profits was recognized in 1QFY12, during which it completed the preliminary stages of its projects, for which the profit recognition is higher. Going forward, the company's future profit will be based on the gradual increase reflected in its 2QFY12 performance due to lower profit recognition versus the higher portion booked at the preliminary stage in 1QFY12. Finally, on a YTD comparison, both MHB's revenue of RM1631.0m and EBIT of RM139.4m were 13.3% and 11.5% lower respectively as a result of lower profit from the offshore segment.

Reducing estimates. We are downgrading our FY12-13 earnings forecasts by 11% to 13% in view of the poorer-than-expected 2QFY12 results.

Maintain NEUTRAL. Our FV for the company is adjusted to RM5.32 after factoring the earnings downgrade and rolling our valuation forward to a FY13 EPS, based on a PER of 23x.

Source: OSK