MHB secured EPCIC works for the Kasawari project estimated to value at ~USD600m (or ~RM2.5bn), lifting the company’s order-book by 3-4x to >RM3bn (multi-year high), and providing much-needed earnings visibility. Given its huge size, we believe this contract could serve as a rerating catalyst, BUY with a TP of RM1.05 pegged to 0.7x PBV on FY20E – roughly in-line with its 5-year mean valuations.

MHB has been awarded a contract from Petronas Carigali to undertake the engineering, procurement, construction, installation and commissioning (EPCIC) works for the Kasawari Gas Development project that includes construction of 47k tonnes of central processing platform (CPP), 8.6k tonnes of wellhead platform (WHP) and a flare structure, together with two bridges linking the CPP to the WHP and the flare structure. The contract also involves the transportation and installation of an 85km pipeline linking the Kasawari CPP to the existing E11R-A platform.

We estimate value of the contract to be worth roughly ~USD600m (or ~RM2.5bn), with an EPCIC timeframe of approximately ~3-4 years. We expect the contract to fetch low-teens percentage EBIT margins, although earnings recognition will be mostly back-loaded towards the very later stages of progression, similar to the company’s other projects at hand.

Overall, we are positive on this project. To recap, the Kasawari EPCIC contract was previously anticipated to be awarded in the earlier part of the year but was met with numerous delays given environmental and political issues. As such, with the contract now being successfully awarded, we believe this would provide a much-needed clearing of overhang of this current issue, providing added clarity and earnings visibility for the company.

Take note that this is a sizable contract will lift MHB’s order-book by 3- 4x of >RM3b (from RM864m as at end-1Q19).). We believe the Kasawari contract will act as a re-rating catalyst for the stock.

Source: Rakuten Research - 24 Jul 2019