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MMHE Holdings - Locking In the Malikai project

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Publish date: Wed, 13 Feb 2013, 01:29 PM
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News    Last week, MMHE announced that its joint-venture with Technip Geoproduction had been awarded an Engineering, Procurement and Construction contract for the TLP Malikai Deepwater Project by Sabah Shell Petroleum Company. The TLP Malikai Deepwater Project comprises of two structures i.e. 1) a 14,000 metric tonnes (mt) topside and 2) a 12,000mt hull.

 Valued at approximately USD775m (c.RM2.4b), the project will be shared on a 50:50 basis and is purportedly expected to be completed by 3QCY15. This implies that MMHE's portion of the contract is c.RM1.2b.

Comments   We are not surprised by the win and the JV deal as market talk earlier was that MMHE was the frontrunner for the Malikai project and that the project would likely be shared with Technip.

 The project will lift MMHE's order book to c.RM3.7b (accounting for only MMHE's 50% stake) and assuming an EBIT of 5%-10%, the project will yield around RM60m-RM120m (c.RM22m-RM44m p.a.) to MMHE (100% stake is c.RM120-240m) for the tenure of the project.

 While the win will boost MMHE's order book, it is within our new wins forecast of RM3.0b for FY13. Furthermore, the earnings will only be equity accounted in MMHE books.

Outlook   We are still negative on the company's short term prospects due to: 1) its existing yard facilities that are still constrained by projects that have yet to be delivered (i.e. Gumusut-Kakap and Kebabangan); 2) spotty execution track record which typically leads to longer-than-expected project durations.

Forecast   We are maintaining our earnings estimates pending the upcoming 4QFY12 results (expected by end-Feb 13). We, however, foresee no major surprises barring another provision for the Cendor FPSO project, which management has guided to be highly unlikely. 

Rating    Maintain UNDERPERFORM

Valuation    Our target price of RM4.02 is based on an unchanged targeted CY13 PER of 18.0x (which is at a premium against the sector's average PER of 15.0x as Petronas' patronage guarantees MMHE a certain degree of contract replenishment). 

Risks   1) A higher than expected project wins and 2) an acceleration in its project executions.

Source: Kenanga
MHB (5186)
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