News

Yesterday, MHB issued a press release announcing that it has secured multiple contracts recently with a total value of RM324m.

Four major contracts were mentioned: - Fabrication of substructures and bridge for Baronia CPP-B project with structural components weighing 10,736 MT. This project is related to Integrated Baram Delta Gas Gathering II (Bardegg II) and Baronia EOR project running until Mar 2017. - Facilities Improvement Project Package C which entails HUC jobs, topside modification, structural and mechanical retrofit for two years from Jun 2015 to Jun 2017 with oneyear extension option. - Life-extension and dry-docking for two LNG carrier vessels for MISC. - FSO conversion for EA Technique (M) Bhd expected to arrive in the yard in Jul15 and sail away by end-Jun16.

Comments

We deemed the contract as within our expectations as we have factored in RM1.1b contract replenishment for year 2015.

However, this is a positive to the group, especially in this volatile period where fabrication contracts are hard to come by due to delays and cuts in CAPEX by oil producers.

EBIT margin is believed to range between 6-7% for the fabrication projects while we do not discount the possibility of timing difference on recognition of revenue and profit from these projects. Some projects might have their profits backloaded to the later period.

Notwithstanding, this indicates that Petronas is slowly gearing up to award more contracts to the service providers post its reorganization due to the weaker crude oil prices and more awards could be seen in 2H this year.

Outlook

Current order book stands at RM1.5b after inclusion of the new contracts secured, spanning up to 2017.

Profit contribution for most of the OBU projects is guided to emerge only by 2H15 and 2016.

Tenderbook of the group now stands at RM7.0b with c.RM4.5b comprising oversea jobs and the balance in Malaysia. This is seen as an indication of the group’s effort to reduce its reliance on Petronas for fabrication jobs.

We foresee pressures on its already low fabrication job margins as oil majors seek to cut costs in the midst of a more challenging O & G industry.

EPCC contract award for the Kasawari gas project which was originally scheduled to be awarded in Feb 2015 has been delayed without a certain deadline due to higher uncertainty in the oil prices. Being one of the three shortlisted players, this job is expected to provide a huge boost to the group’s dwindling orderbook.

For the Marine repair segment, we anticipate it to be more resilient compared to the Offshore division as the demand for dry docking repair and maintenance is expected to be less elastic to the changes in oil prices and industry outlook.

Forecast

We maintain our forecasts for now.

Rating

Maintain UNDERPERFORM

Valuation

TP is maintained at RM1.00 based on 12.0x CY16 PER.

Risks to Our Call

(i) higher-than-expected project wins, (ii) better-than expected margins, and (iii) acceleration in project executions.

Source: Kenanga Research - 16 Jun 2015