Period

1Q16/3M16

Actual vs. Expectations

1Q16 core net profit (CNP) of RM29.9m accounted for 36%/31% of our/consensus full-year forecast. It is deemed broadly within expectations as we expect weaker quarters ahead in view of project completion.

Dividends

No dividend was declared as expected.

Key Results Highlights

1Q16 CNP fell 47.9% QoQ from RM57.3m in 4Q15, in line with a 64.4% plunge in revenue, after stripping off unrealised forex loss of RM37.4m due to lower backlog as most projects were nearing completions.

Note that NMB Bergading WHP & Jackets project and Besar-A WHP & Jacket project have reached 97% and 87% overall completion, respectively.

YoY, CNP soared by 31.5% from RM22.7m in 1Q15 backed by improved contribution from marine segment in terms of both topline and margins despite topline sliding 64.3% as well as a slight loss in offshore segment.

Outlook

Current order book stands at RM1.0b vs. RM1.1b as at Dec 2015 after the inclusion of new contracts secured, spanning up to 2017. YTD, MHB has secured c. RM109m new orders, including RAPID Package-3 piping prefabrication.

Tenderbook is worth RM7.4b of which RM1.75b are tenders submitted for 2016. We were guided that MHB is increasing its tender for onshore jobs and pre-fabrication works, especially from RAPID project.

As a result, margin from offshore segment might fall given that on-shore construction and fabrication jobs typically fetch lower margins.

We reckon that its plan to expand the marine segment will continue to support MHB’s earnings. As such, it will partially offset the slower contract award from offshore segment.

Change to Forecasts

No changes to our forecast.

Rating

Maintain MARKET PERFORM

Valuation

Post rolling over our valuation base year to CY17, our TP is increased to RM1.25 from RM1.00 pegged to higher 0.7x PBV from 0.6x previously given that (i) the anticipation of cost-overrun Malikai project is completing soon and (ii) RM922m cash is 35% of its book value.

Risks To Our Call

(i) weaker-than-expected project wins, (ii) weakerthan expected margins, and (iii) lower contract replenishment risk.

Source: Kenanga Research - 28 Apr 2016