Malaysia Marine & Heavy Engineering : Relief from RM1bil Bokor EPCIC HOLD

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Malaysia Marine & Heavy Engineering : Relief from RM1bil Bokor EPCIC HOLD

We maintain our HOLD recommendation on Malaysia Marine and Heavy Engineering Holdings (MMHE) with an unchanged fair value of RM1.00 based on a 40% discount to FY17F book valuation. Our FY17F-FY19F earnings are maintained as we have already incorporated new annual order intakes of RM1.2bil-RM1.6bil, of which the group has guided on potential ongoing and planned tenders of RM11.3bil. MMHE has been awarded a RM1bil engineering, procurement, construction, installation and commissioning (EPCIC) contract for a central processing platform (CPP) for the Bokor Phase 3 Re-Development project by Petronas Carigali Sdn Bhd. With the first steel cut expected to commence in 3QCY18, the project is scheduled to be completed in mid-2QCY20. We estimate that the group’s order book, assuming a quarterly depletion of RM300mil, would have risen by 66% to RM1,759mil from RM1,059mil as at 31 Dec 2016.

We note that even with the higher yard utilisation in 4QFY16, MMHE’s 4QFY16 revenue declined 9% QoQ which resulted in a core loss of RM40mil, including additional one-off margins from marine change orders. Hence, the group’s earnings momentum is unlikely to gain traction this year. This Bokor project is much needed for MMHE’s West yard as its current yard utilisation of 50%-60% could drop to a relatively idle capacity with the completion of the Baronia CPP and F12 Kumang topside by 1HFY17. The stock currently trades at a P/BV of 0.6x due to the likelihood of further operating losses from the upstream sector’s slow project rollouts.

Others :

Ikhmas Jaya Group : Getting cash, properties under settlement agreement         BUY

MISC : Earnings unchanged as 2nd Thai FSO not secured yet        HOLD

QUICK TAKE

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DISCLAIMER:

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.