• MYR0.53 FV based on 14x FY23F P/E. T7 Global is set to deliver a FY22- 25F earnings CAGR of 35% backed by its solid MYR2.6bn orderbook. The latter is predominantly led by maiden contributions from two mobile offshore production units (MOPUs) and a recent baggage-handling system (BHS) job. This is further anchored by a rise in hook-up & commissioning (HUC) and maintenance, construction & modification (MCM) work orders, and margins expansion.

• Solid recurring income from MOPUs. T7 has secured a 10-year MOPU lease contract for Petronas Carigali’s (Carigali) Bayan field. It also landed a 5-year MOPU lease contract with Busrakham G11 for the Nong Yao field. The Bayan MOPU is set to start its lease in FY23 and provide average recurring PBTs of MYR13m pa for the next 10 years. The Nong Yao MOPU is now undergoing construction and is set to start contributing average PBTs of MYR8m pa by FY24. With both MOPUs accounting for >50% of T7’s MYR2.6bn orderbook, we see both contracts cumulatively contributing 23% and 36% of FY24-25 PBTs. Additionally, the group is also tendering for another two MOPU projects and aims to secure at least one MOPU project every two years.

• Rising offshore capex beneficiary. Other than its MCM and HUC contracts with Carigali and Hibiscus Petroleum (HIBI MK, NR), T7 is looking to tender for the Pan Malaysia Maintenance, Construction & Modification (PM-MCM) contract that is slated to open for bids from 2024 onwards. The group’s upstream oil & gas (O&G) services should continue to benefit from the oil majors’ increased capex and opex. Note: According to the Petronas Activity Outlook 2023-2025 report, the national oil firm is targeting sizable increases of 47% and 37% YoY for HUC and MCM activities in 2023 alone.

• Construction arm’s new project win. In Dec 2022, T7’s consortium with Siemen Logistics landed a 3-year contract from Malaysia Airports (MAHB MK, NEUTRAL, TP: MYR7.60) for a BHS asset replacement programme at Kuala Lumpur International Airport’s (KLIA) Terminal 1. T7 will be responsible for the BHS’ installation, steel support construction, supervisory control and data acquisition (SCADA) control rooms’ refurbishments, server and X-ray screening rooms, and IT infrastructure. The new BHS will feature Siemen Logistics’ efficient VarioBelt belt conveyor system. According to The Edge, MAHB allocated up to MYR1bn for KLIA’s BHS upgrade.

• Earnings forecasts and valuation. All in, we project a FY22-FY25F earnings CAGR of 35%, further led by rising margins from the MOPU and BHS contracts. We ascribe 14x FY23F P/E to T7, a c.55% premium to Street’s P/Es for Uzma (UZMA MK, NR) and Dayang Enterprise (DEHB MK, BUY, TP: MYR1.73), substantiated by its strong FY23F earnings growth and expected recurring income from the two MOPU contracts secured. Key risks: Lower-than-expected work orders, softer-than-expected oil prices, higher-than-expected operating costs, and a high leverage.

Source: RHB Research - 29 Mar 2023