MHB sees no significant impact from loss of Bertam job to THHE

Business & Markets 2013
Written by AmResearch
Thursday, 14 November 2013 10:16
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Malaysia Marine and Heavy Engineering Holdings Bhd
(Nov 13, RM3.84)
Maintain buy at RM3.89 with a fair value of RM4.30: We maintain our “buy”
call on MHB with an unchanged fair value of RM4.30 per share based on a
forecast 2014 financial year (FY14F) price-earnings ratio (PER) of 25 times —
at a 13% premium to Kencana Petroleum Bhd’s peak of 22 times in 2007.
We maintain FY13F to FY15F earnings, which assume new annual order
intakes of RM2.5 billion to RM4 billion, as there is likely to be insignificant
impact from the loss of the Bertam wellhead platform job to TH Heavy
Engineering Bhd (THHE).
THHE announced that it had received a letter of award from Lundin Malaysia
BV to fabricate a wellhead platform for the PM307 Bertam field development
project, 175km off the east coast of Peninsular Malaysia. We are surprised that
THHE managed to secure this project as industry news portal Upstream
indicated earlier that MHB was expected to secure this contract.
The value of this one-off contract, which will be carried out over 12 months,
was not disclosed. This is likely due to ongoing technical specifications. But our
earlier channel checks indicate that the potential value of this contract could be
around RM100 million, a slight 4% of MHB’s estimated order book of RM2.5
billion currently.
For the rest of this year, we do not expect any further significant awards for
MHB. The visibility of the timeline for the award of contracts for larger central
processing platform projects such as Sepat, Bokor and Dulang fields is unclear
because technical and financial evaluations are still ongoing, given Petroliam
Nasional Bhd’s concern over cost escalations.
But we remain sanguine that there will be ramped up interest in the sector given the impending award of the Pan-Malaysia umbrella
transport and installation contracts by the end of this year as well as charters for drilling rigs and floating, production, storage and
offloading vessels early next year.
Although MHB may not directly benefit from these contracts, this could catalyse fresh excitement for fabrication order flows.
We have already highlighted in our past reports that the Malikai tension-leg platform contract, secured in February this year, and any
additional orders secured by the end of 2013 could only begin profit contributions in the second half of FY14, as MHB’s accounting policy
recognises earnings when work progress has reached the completion stage of 25%. Hence, we believe the market has already priced in
the expected uneven earnings performance by MHB over the next two quarters given the dearth of order flows since February this year. —
AmResearch, Nov 13