4Q15/FY15
Actual vs. Expectations
FY15 core net profit (CNP) of RM83.1m beat our estimate by 142% but was within consensus expectation. The main deviation was mainly due to: (i) unexpected provision reversals, and (ii) better contribution from offshore segment.
Dividends
No dividend was declared as expected.
Key Results Highlights
MHB managed to turn around in 4Q15 with a CNP of RM57.3m from a net loss of RM24.8m in 3Q15, after stripping off impairment charges of RM99.8m due to stronger contribution from its offshore segment backed by higher revenue and margin.
YoY, CNP also jumped more than 5x from RM8.4m in 4Q14 largely attributable to the abovementioned reasons coupled with better performance from the marine division which is currently executing higher value jobs at full capacity.
FY15 CNP dropped 15% YoY to RM83.1m from RM97.6m owing to weaker full-year revenue and slumping margin in the offshore segment despite a strong pickup in the last quarter of the year.
Outlook
Current order book stands at RM1.1b vs. RM1.5b as at Dec 2014 after the inclusion of new contracts secured, spanning up to 2017.
Tenderbook worth RM8.4b of which 76% are domestic bids. We are guided that MHB is increasing its tender for onshore jobs and prefabrication works, especially from RAPID project.
As a result, margin from offshore segment might fall given that on-shore construction and fabrication jobs typically fetch lower margins.
We reckon that its plan to expand the marine segment will continue to support MHB’s earnings. As such, it will partially offset the slower contract award from offshore segment.
Change to Forecasts
We raise FY16E earnings by 14% to RM83.8m factoring in stronger revenue contributions from the marine division.
FY17E CNP of RM79.0m is introduced on the back of RM1b contract replenishment with 40% burn rate for offshore division and flat contribution from marine segment.
Rating
Upgrade to MARKET PERFORM from UNDERPERFORM due to better risk-reward ratio following the recent share price weakness.
Valuation
Despite upgrade in earnings, our TP is maintained at RM1.00 pegged to 0.6x CY16 PBV in view of the underlying orderbook replenishment risk in the near-term.
Risks
(i) higher-than-expected project wins, (ii) better-than expected margins, and (iii) acceleration in project executions.
Source: Kenanga Research - 4 Feb 2016
