‘Buy’ call on Malaysia Marine amid RM5b order prospects

KUALA LUMPUR: Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) is expected to secure new fabrications order of up to RM5 billion, AmResearch Sdn Bhd says.


The prospects have prompted AmResearch to raise its earnings forecast on MHB’s financial years 2012 (FY12) and 2013 (FY13) by 12 per cent to 15 per cent.

“We have raised FY12-FY13 forecast earnings of MHB by 12 per cent-15 per cent from a 10 per cent increase, in view of new fabrication order assumption of RM4 billion-RM5 billion,” AmResearch said in its research note.

It said the forecast is also based on MHB’s one ppt-EBIT (percentage point-earnings before interest and tax) increase to 12 per cent-13 per cent compared with 9 per cent in the year ended March 2011.

It said MHB’s higher fair value partly stems from adjusting MHB’s forecasts for its financial year-end change from March 31 to December 31 2011.

“Our FY12-FY13 forecast earnings are 15 per cent-18 per cent above street estimates due to our higher order book and margin assumptions.

“We assume that the value-enhancing Pasir Gudang yard acquisition from Sime Darby Bhd will increase FY12-FY13 forecast revenue recognition by RM800 million to RM1 billion from the outstanding RM2 billion Kebabangan project, while margin improvements will be driven by the upcoming Tapis and Malikai projects, potentially worth RM3 billion,” AmResearch said.

Although MHB’s share price has outperformed the FBM KLCI by 40 per cent since the beginning of the year, AmResearch believes the company’s re-rating catalysts remain intact due to several factors.

For instance, it said re-accelerating order book momentum could raise its current net order book of RM3 billion to RM5 billion by the end of the year.

It noted that at least RM3 billion worth of jobs have been secured, comprising ExxonMobil’s Tapis central processing platform, Shell’s Malikai tension leg platform and the conversion of two old MISC liquefied natural gas (LNG) tankers to floating storage units based in Malacca.

AmResearch said re-rating catalysts will also come from higher margin benchmarks for more complex structures such as the ground-breaking over US$1 billion (RM3 billion) floating LNG vessel for Murphy Oil off Sabah, which could be tendered towards the end of the year.

“There is also robust earnings momentum in an FY13-FY10 earnings CAGR (compounded annual growth rate) of 38 per cent versus the average 26 per cent for other domestic fabricators,” it said.

AmResearch said MHB’s stock currently trades at the FY12 forecast price earning (PE) of 21x, on par with domestic oil and gas fabricators.

It expects further PE expansion driving by MHB’s exciting new order prospects, improving margin performance and being the only oil and gas fabricator to be included in the FBM KLCI.

MHB has been included in the FBM KLCI from June 20 this year.
AmResearch reiterates a “buy” on MHB, with a raised fair value to RM9.90 per share from RM8.25 per share previously, based on an unchanged but rolled-forward calendar year 2012 forecast PE of 25x, a 15 per cent premium to Kencana Petroleum Bhd’s 2007 peak of 22x.

“MHB stock remains our preferred pick in the oil and 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,” it said.