MHB has secured a second subcontract for an OSS HVDC platform worth RM1.5bn. The project’s duration is approximately 36 months and is estimated to generate RM15.0mn PBT throughout the contract period. We are cautiously optimistic about the job win as it provides the group with valuable experience in the OSS segment. However, MHB may face challenges in the form of execution risks and cost overruns. No change to our earnings forecasts. Following the recent weakness in its share price, MHB is upgraded to Buy with an unchanged TP of RM0.55/share pegged to 0.65x CY25 P/B ratio.

Secures Another Offshore Substation Subcontract Worth RM1.5bn

Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) has secured another engineering, procurement and construction (EPC) subcontract for an offshore substation (OSS) high voltage direct current (HVDC) platform from Petrofac International (UAE) LLC Worth RM1.5bn. The OSS HDVC Platform comprises a topside and a jacket for the Nederwiek 1 project. The subcontract’s duration is approximately 36 months, with fabrication to begin in 2025 and be completed by 2028.

This is the second OSS subcontract secured by MHB from Petrofac. The first subcontract was similar to the EPC of the OSS HVDC platform, worth RM1.2bn, and was secured in November 2023. Both contracts are part of TenneT’s 2GW energy transition Programme in the Netherlands.

Our Take

This is MHB’s first project win announced for the year. Following the job win, MHB’s order book is estimated to be c.RM6.9bn, equivalent to 2.1x FY23 revenue. Considering the group’s poor track record of making operating losses in the Heavy Engineering segment for 8 consecutive financial years, we pencilled in an operating margin assumption of 1%, translating into RM15.0mn PBT throughout the EPC period.

Overall, we are cautiously optimistic about the job win as it provides the group with valuable experience in the OSS segment. However, as this is MHB’s second OSS project that commences around the same time as the first one, the group may face challenges in the form of execution risks and cost overruns.

Impact

No change to our earnings forecasts as the job win is within our FY24 order book replenishment assumption of RM3.0bn.

Valuation

Following the weakness in its share price, upgrade to Buy with an unchanged target price of RM0.55/share pegged to 0.65x CY25 P/B ratio.

Source: TA Research - 5 Jun 2024