News  Last week, Petronas announced in its website that it had awarded the Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) contract for the development of two gas fields in Block SK316 to the joint-venture between MMHE Holdings BHd (MHB) and Technip.

 The JV purportedly beat two other consortium players namely TH-Heavy-Mr Dermott and SapurakencanaSaipem.

 However, no contract value was mentioned.

Comments  We were surprised by this development as: (i) earlier last week there were media reports that the TH-Heavy and McDermott consortium was the frontrunners for the job, (ii) MHB has yet to make any formal announcement, and (iii) no contract value was mentioned.

 Nonetheless, we are positive should MHB win the contract as it is a much-needed orderbook replenishment.

 As mentioned above there has been no published contract value, but based on market talk, the whole EPCIC contract is purportedly worth RM3.2b.

 We believe that MHB will be largely in charge of the EPC portion that could be lesser than RM3.2b.

 In any case, it is highly likely that the contract will be shared on a 50:50 basis between MHB and Technip.

Outlook  Order book currently stands at c.RM1.8b with the Malikai project being the largest with a contract value of RM1.0b.

 Tender book stands at RM4.5b with the majority (c.50-75%) comprising domestic contracts. Management admitted that the contract-flows have been pretty slow lately but expected pace to pick up by year-end.

 We suspect competition will intensify with additional fabrication licences being dished out (i.e. Muhibbah and KKB Engineering), but MHB is likely to maintain its edge in heavy-tonnage and complex projects given its track record and tie-up with the global heavyweight Technip.

Forecast  We are keeping our FY13-FY14 forecasts for now pending an official announcement by MHB. However, we have already assumed around RM3.0b contract wins in FY14.

 As such, the win is unlikely to affect our forecasts.

Rating   Maintain UNDERPERFORM.

Valuation  Maintaining our target price of RM3.39 based on an unchanged 18.0x PER on CY14 EPS.

Risks to Our Call  i) Higher-than-expected project wins

 ii) Better-than-expected margins

 iii) Acceleration in project executions.

Source: Kenanga