MHB (5186) MALAYSIA MARINE AND HEAVY ENGINEERING
KUALA LUMPUR: With weaker crude oil prices expected to persist, not to mention increasing competition in the fabrication space, AllianceDBS has pronounced Malaysia Marine and Heavy Engineering (MMHE) Fully Valued and is slashing the target price to RM1.65 from RM2.25.
According to the research house, the group’s current orderbook – comprised largely of two main contracts, Malikai Tension Leg Platform and SK316 central processing platform – stands at RM1.8bil.
This represents less than one time book-to-bill ratio and will run down by mid-2016.
“As we expect smaller contract wins going forward and stiff competition, we have lowered our FY 2015 new order wins assumption to RM2bil from RM2.5bil previously,” says AllianceDBS, noting that this cut FY 2015 and 2016 earnings by 18% to 24%.
It says MMHE and other Malaysian fabricators have recently lost out on two major tenders in Malaysia to South Korea’s Hyundai Heavy Industries (HHI).
“These were Bergading CPP in the North Malay Basin, and Bardegg 2 CPP and Baronia Enhanced Oil Recovery project. This is a worrying trend as there are few major CPP tenders, and there could be a 12- to 24-month wait for any new tenders to emerge,” stresses the research house.
Alliance DBS says MMHE is expected to add to its orderbook by the end of FY 2014 or first quarter 2015.
“However, we understand that these contracts will largely be subcontractor roles for jacket construction from HHI and, potentially, well head platform work,” it says.
Target price is therefore cut to RM1.65 based on 18 times price-earnings ratio for FY 2015, with the earnings adjustment.
