News  It was reported in various online news portals last Friday that Petronas subsidiary Pengerang Power Sdn Bhd has awarded the engineering, procurement, construction and commissioning (EPCC) contract for its 1220MW Pengerang Co-generation Plant (PCP) project in Johor to a consortium of Siemens AG, Siemens Malaysia and MMC Engineering Services Sdn Bhd.

 The contract requires the consortium to undertake the design, engineering, procurement, supply, manufacturing, construction, installation, development, testing and commissioning works and warranty for the project. The cogeneration plant is expected to be commercially operational by mid-2017.

Comments  This is a POSITIVE surprise to us as we did not expect Siemens-MMC to win the project. Based on our channel checks, the project could be valued at RM6.0b or even more. Assuming MMC’s stake in the consortium is 30-40%, MMC could replenish another RM1.8b-RM2.4b on its existing orderbook of RM2.7. This is more than our assumption of new contracts win in FY14 of RM1.0b.

 Based on the conservative assumption of (i) the project value is RM6.0b, (ii) MMC has 30% stake in the consortium, and (iii) the project gives 6% PBT margins, this project would contribute to MMC’s net profit on average RM27m per year until 2017. If our assumptions hold true, (pending actual information released by MMC management), we would revise upward MMC’s earnings forecasts by +3%-4% in FY14E and FY15E and adjust higher our TP to RM2.82 from RM2.80.

Outlook  The momentum of MMC’s construction division has picked up this year. If it is true that MMC’s portion in this contract is RM1.8b; year-to-date, MMC has secured RM2.14b of contract (MMC and its JV partners secured Langat 2 project last month). Hence, we estimate MMC’s total outstanding orderbook now is RM4.84b.

 Nevertheless, the Malakoff listing still remains the key catalyst for MMC. With the listing of Malakoff, MMC could reduce its debt substantially. Post-listing of Malakoff, MMC could focus more on its construction division, which has a bright outlook especially with KVMRT2.

Forecast  We keep our earnings forecast unchanged for now pending the official announcement.

Rating Maintain MARKET PERFORM

Valuation  Maintaining our SoP based TP at RM2.80 at this juncture pending official announcement by the management

Risks  No delay in Malakoff listing.

Source: Kenanga