MMHE advances after AmResearch raises target price

KUALA LUMPUR: Malaysia Marine & Heavy Engineering Holdings Bhd shares rose on Monday, July 4 after AmResearch said the stock was its preferred pick in the oil & gas industry as the proxy to Malaysia’s deepwater and enhanced oil recovery projects in tandem with Petronas’ accelerating capex rollout of RM300 billion over the next five years.

At 2.35pm, MMHE added 12 sen to RM8.52 with 410, 500 shares done.

AmResearch reiterated its Buy rating MMHE, with a raised fair value to RM9.90 (from RM8.25 previously), based on an unchanged but rolled-forward CY12F PE of 25 times – a 15% premium to Kencana Petroleum’s 2007 peak of 22 times.

“We have raised FY12F-FY13F earnings by 12%-15% from: (1) a 10% increase in new fabrication order assumption to RM4 billion-RM5billion; (2) 1ppt -EBIT margin increase to 12%-13%, compared with 9% in FY March 2011; and (3) lower effective tax rates from a faster recognition of investment tax allowances on the group’s capital expenditure programme,” AmResearch said in a note July 4.

The research house said MMHE’s higher fair value also partly stemmed from adjusting MMHE’s forecasts for its FY-end change from March to December 2011.

“Although MMHE’s share price has outperformed the FBMKLCI by 40% since the beginning of the year, we believe the company’s re-rating catalysts remain intact.

“The stock currently trades at an FY12F PE of 21 times, on par with domestic O&G fabricators, but we expect further PE expansion driven by its exciting new order prospects, improving margin performance and being the only O&G fabricator to be included in the FBM KLCI,” it said.