Kenanga Research & Investment

MMHE Holdings - RM1.0b EPCIC Job

Publish date: Tue, 18 Apr 2017, 09:13 AM

We believe the RM1.0b contract which doubled its outstanding order book is positive to MMHE Holding Bhd (MHB). Meanwhile, MHB is also eyeing a small portion of Petronas? MCM contract, which could be awarded by the end of 2Q17. Despite upgrading our MHB?s target price to RM0.97 (from RM0.96 previously), pegged to 0.6x PBV post earnings upgrade and rolling over valuation base to FY18, we maintain our UNDERPERFORM call on the stock in view of limited job prospect within the fabrication space given tight capex spending from oil majors.

First EPCIC won for the year. Yesterday, MHB announced that its wholly-owned subsidiary Malaysia Marine and Heavy Engineering Sdn Bhd has been awarded an Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) of Central Processing Platform (CPP) for the Bokor Phase 3 Re-Development Project by PETRONAS Carigali Sdn. Bhd. (PCSB). The contract value of this EPCIC project is worth c.RM1.0b.

First steel cut in 3Q18. We are positive on the contract win, which doubled its outstanding order book of RM1.1b as of 4Q16. The first steel cut is expected to commence in 3Q18 and the project is slated to be completed in mid 2Q20. Upon completion, the new CPP will be installed at Bokor field located in Baram Delta, Offshore Sarawak, in a water depth of 70.0m. We believe the timeline of first steel cut in 3Q18 implies that Petronas is pushing the bulk of its upstream capex spending to FY18.

Tender book at RM3.4b. We understand that its clients have continued to put on hold new projects even though tenders have been submitted. Post Bokor contract award, tender book is reduced to RM3.4b, of which RM1.7b is expected to be awarded in FY17. Meanwhile, MHB is also eyeing a portion of another Petronas? project involving maintenance, construction and modification (MCM) with value of up to RM500m which could be out end of this quarter.

Upgrade FY18 earnings. Post contract award, we have increased our FY17 order book replenishment assumption to RM1.5b from RM500m previously. However, we maintain our FY17E earnings forecast as this contract will only start contributing in FY18. Following that, FY18E earnings is revised up by 36% to RM25.5m.

Maintain UNDERPERFORM. Post earnings upgrade and rolling over of the valuation base year to FY18, we increased the target price to RM0.97 from RM0.96 previously, pegged to 0.6x FY18E PBV. However, we maintain our UNDERPERFORM call on the stock in view of limited fabrication job given flattish capex spending from oil majors.

Upside risks to our call include: (i) stronger-than-expected project wins, (ii) stronger-than expected margins, and (iii) higher contract replenishment.

Source: Kenanga Research - 18 Apr 2017

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2017-04-18 21:22

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