MMHE’s MYR113.4m  9M14 net profit was within our estimates,  at 71.4% of  our  full-year  forecast,  but  below  consensus  at  69.4%.  We  maintain our  SELL  call  with  a  lower  MYR2.01  TP  (from  MYR3.10),  an  8.6% downside. This is  based on 15.5x  FY15F  P/E,  ie  a 15% discount to  the mid-cap oil and gas counters under our coverage. We also maintain our FY14 earnings estimate but lower our FY15 net profit forecast by 22%.

9M14  results  came  in  line.  MMHE’s  9M14  revenue  increased marginally YoY  by  1.6%,  mainly on  higher earnings recognition from  its offshore construction business unit’s  completed projects. This unit made up 92% of total revenue, with the rest contributed by its marine business division.  MMHE’s  core  earnings  were  22.5%  YoY  lower,  mainly  due tothe  lower  number  of  projects  undertaken  by  its  offshore  construction business unit, new projects yet to commence operations and lower value of repair and maintenance work by its marine business wing.

Current  orderbook  at  MYR1.7bn.  MMHE’s  current  orderbook  of MYR1.68bn is lower by 8%  QoQ  and 52% YoY.  YTD,  the company  has only secured MYR323m  in  new orders, ie a  procurement, hook-up and commissioning  contract  for  the  Besar-A  development  project  (deliveryslated  for  4Q15)  and  structure  fabrication  for  the  North  Malay  Basin’s(NMB)  central processing platform  (CPP). Delivery for this is slated for 2H16.  The  bulk  of  MMHE’s  orderbook  (51.3%)  is made  up  of  SK316’s structure fabrication  works,  while  the tension leg platform (TLP) for the Malikai deepwater project makes up 25.6%. 

Downgrade  TP  to  MYR2.01  (from  MYR3.10).  We  keep  our  earnings estimate  for  FY14  but  lower  our  FY15  net  profit  forecast  by  22%. We believe MMHE will face an uphill task  in  increasing its orderbook,  given the threat of lower capex spending by the oil majors  and lower crude oil prices.  Due  to  the  lack  of  meaningful  orderbook  replenishment s  past 2015,  we  maintain  our  SELL  recommendation  with  a  lower  TP  of MYR2.01, based on 15.5x FY15F P/E. This is a 15% discount to the midcap oil and gas stocks under our coverage.

Source: RHB