MHB announced two new heavy engineering contract wins. While values were undisclosed, we estimate values to sum up to RM200-RM300m, fetching low-teens operating margins. Overall, we are positive on the awards, further strengthening its order-book (RM2.7bn). BUY with TP of RM1.05 pegged to 0.7x FY20E PBV – roughly in-line with its 5-year mean valuations. MHB is also the only few oil and gas company which has a net-cash balance sheet.

MHB announced that it was awarded two contracts; (i) Bekok Oil EPCIC contract from Petronas Carigali, and (ii) EPCC contract for Bergading MRU module from HESS. While the contract values were undisclosed, we estimate each of the contracts to be worth RM100m-RM150m in value, thus summing up the two contracts to a total win of RM200mRM300m.

Overall, we are positive on the contract wins, this being the second win YTD (after the Kasawari EPCC contract award), bringing YTD wins to ~RM2.5bn. We expect these two contracts to fetch roughly low-teens operating margins. The two contracts would also add positively to its order-book, standing at RM2.7bn as at end-3QFY19.

We believe these contracts come in tandem with increased offshore jobs flow not just for MHB, but for the industry as a whole, in which we are starting to see a pick-up in upstream activities. This also in-line with Petronas’ expected increase in capex spending.

On the back of recent contract wins, MHB’s order-book is currently at a multi-year high, thus providing revenue visibility well over the next 3-4 years. Meanwhile, tender-book of RM13.7bn as at end-3Q19 (significant jump QoQ from RM3.2bn) signifies greater opportunities in the market, thus prompting us to be more positive. Do note that given its delayed earnings recognition nature, we expect the earnings contribution to be back loaded towards the later periods of the projects. Nonetheless, given its healthy multi-year high orderbook, we believe an earnings turnaround should be seen eventually

Source: Rakuten Research - 3 Dec 2019