• Maintain BUY and MYR0.60 TP, 22% upside. We are upbeat on Malaysia Marine & Heavy Engineering’s latest contract win as it further strengthens the group’s position in the heavy engineering space. It also marks an entry into the growing windfarm market.

• MMHE’s venture into the offshore windfarm market. Wholly owned subsidiary Malaysia Marine & Heavy Engineering S/B has secured a c.MYR1.2bn subcontract from IJmuiden Ver Alpha Project from Petrofac International (UAE) for the EPC of an offshore substation (OSS) high voltage direct current or HVDC platform in the Netherlands. This OSS platform comprises a topside weighing c.30,000 tonnes (includes overall equipment) and c.10,000 tonne jacket.

• The duration of the subcontract is about 54 months, with fabrication expected to commence in 2025 – the detail design and procurement stages are being done by the client. Management previously guided that construction will be done at MMHE’s East Yard along with the CarigaliPTTEPI Operating Company (CPOC) job that was awarded in February. In addition, the parties will also collaborate towards the possibility of fabrication works for two additional OSS units of similar sizes.

• Outlook. We view this as a positive as it provides MMHE entry into the offshore windfarm landscape. If successfully executed, this will open up new avenues for growth in the windfarm sector in our view. This is the group’s second win for the year, totalling to MYR2.6bn, and we estimate the contract to bring its orderbook to c.MYR6.9bn. Other projects include Rosmari Marjoram (awarded in Sep 2022), the Kasawari Carbon Capture & Sequestration (CCS) (awarded in Nov 2022), and the abovementioned CPOC job. As of 3Q23, MMHE’s tenderbook stood at MYR2-3bn. However, we are not concerned over the smaller value, given that the group’s current projects on hand provide earnings visibility up to FY25.

• Earnings forecast. Due to MMHE’s loss-making track record, we project a conservative EBIT margin of 1%, which translates to c.MYR12m in earnings. However, as the project will only start in 2025, and is slightly lower than our estimated MYR1.5bn, we adjust our earnings to widen FY23’s loss by 8.5% to MYR147.9m and decrease our FY24F-25F earnings by 10-5%. Our MYR0.60 TP remains unchanged and is pegged to 0.6x FY24 P/BV (+1.5SD from the 5- year mean), with a 4% ESG discount built in as per our in-house proprietary methodology. This is due to MMHE’s 2.8 ESG score, which is two notches below the country median.

• Key downside risks include delays in execution, higher material costs, and labour shortages.

Source: RHB Securities Research - 30 Nov 2023