MHB (5186) : Malaysia Marine & Heavy En g - Running dry
Target RM2.10 (Stock Rating: REDUCE)
MMHE's 9M14 net profit undershot expectations, forming only 70% of our and consensus full-year forecasts due to project delays. More worryingly, the company's dry spell, which resulted in the order book shrinking to a record low of RM1.7bn, ran counter to the positive outlook of its peers. Despite a rollover, our target price falls as we cut FY14-16 EPS for lower contract win assumptions. We now value the stock at 21.2x CY16 P/E (formerly 23.4x CY15 P/E) as we lower the target premium from 40% to 30% over our 16.3x target market P/E to reflect the current weak oil price sentiment. We maintain our Reduce call, with the potential de-rating catalysts of slower order book momentum and extended project delays. Switch to SapuraKencana.
16% yoy drop in 9M14 net profit
MMHE's 3Q14 net profit rose 7% yoy, mainly due to: 1) payments for the projects that were delivered in 1H14, namely Tapis, Cendor and Kebabangan, and 2) RM19m investment tax allowance for its yard optimisation programme. The profit contributions from two sizeable projects - Malikai and SK316 - have been delayed to 2H15. As at end-Sep 2014, Malikai was 41% completed and SK316 was 29% underway. The completion of Tapis, Cendor and Kebabangan in 1H14 and the delay in contributions from Malikai and SK316 led to a 16% yoy decline in 9M14 net profit. Management continues to pursue its change order claims for several projects, Tapis in particular. The amount was not disclosed.
Order book falls to all-time low of RM1.7bn
MMHE’s order book declined to a record low of RM1.7bn as at end-Sep 2014 (Figure 1). Earlier in the year, management expected to secure RM1.5bn worth of new projects in FY14. However, MMHE has only won two projects YTD (Besar-A and Bergading, valued at RM350m), which were announced earlier this week.
No major catalysts until 3Q15
MMHE is bidding for new projects worth around RM3bn, including works at refinery and petrochemical integrated development (RAPID). However, we understand that the RAPID project will only be awarded in 2H15. This points to a quiet 1H15 as the profits from Malikai and SK316 are only expected to start flowing in 2H15.
Source: CIMB Daybreak - 06 November 2014
Target RM2.10 (Stock Rating: REDUCE)
MMHE's 9M14 net profit undershot expectations, forming only 70% of our and consensus full-year forecasts due to project delays. More worryingly, the company's dry spell, which resulted in the order book shrinking to a record low of RM1.7bn, ran counter to the positive outlook of its peers. Despite a rollover, our target price falls as we cut FY14-16 EPS for lower contract win assumptions. We now value the stock at 21.2x CY16 P/E (formerly 23.4x CY15 P/E) as we lower the target premium from 40% to 30% over our 16.3x target market P/E to reflect the current weak oil price sentiment. We maintain our Reduce call, with the potential de-rating catalysts of slower order book momentum and extended project delays. Switch to SapuraKencana.
16% yoy drop in 9M14 net profit
MMHE's 3Q14 net profit rose 7% yoy, mainly due to: 1) payments for the projects that were delivered in 1H14, namely Tapis, Cendor and Kebabangan, and 2) RM19m investment tax allowance for its yard optimisation programme. The profit contributions from two sizeable projects - Malikai and SK316 - have been delayed to 2H15. As at end-Sep 2014, Malikai was 41% completed and SK316 was 29% underway. The completion of Tapis, Cendor and Kebabangan in 1H14 and the delay in contributions from Malikai and SK316 led to a 16% yoy decline in 9M14 net profit. Management continues to pursue its change order claims for several projects, Tapis in particular. The amount was not disclosed.
Order book falls to all-time low of RM1.7bn
MMHE’s order book declined to a record low of RM1.7bn as at end-Sep 2014 (Figure 1). Earlier in the year, management expected to secure RM1.5bn worth of new projects in FY14. However, MMHE has only won two projects YTD (Besar-A and Bergading, valued at RM350m), which were announced earlier this week.
No major catalysts until 3Q15
MMHE is bidding for new projects worth around RM3bn, including works at refinery and petrochemical integrated development (RAPID). However, we understand that the RAPID project will only be awarded in 2H15. This points to a quiet 1H15 as the profits from Malikai and SK316 are only expected to start flowing in 2H15.
Source: CIMB Daybreak - 06 November 2014
