Thursday 28 Mar 2024
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KUALA LUMPUR (July 24): Affin Hwang Capital Research has upgraded Malaysia Marine And Heavy Engineering Holdings Bhd (MHB) to "hold" with a higher target price of 83 sen (from 61 sen) following its contract win from Petronas Carigali Sdn Bhd to undertake the engineering, procurement, construction, installation and commissioning (EPCIC) works for the Kasawari Gas Development project.

MHB announced the contract win yesterday.

The project, awarded to its wholly-owned unit Malaysia Marine and Heavy Engineering Sdn Bhd, includes the construction of a 47,000-tonne central processing platform (CPP), a 8,600-tonne wellhead platform (WHP) and a flare structure, together with two bridges linking the CPP to the WHP and the flare structure.

The contract also involves the transportation and installation of an 85-km pipeline linking the Kasawari CPP to the existing E11R-A platform.

In a note today, the research house said the new contract to be executed with partner Technip could be worth some RM5 billion to RM6 billion, citing this "is a long-term re-rating catalyst for the stock".

"Assuming 50% to be executed by MHB, this would increase its current outstanding order book by three times (from RM864 million as of March 2019)," it added.

The research house said the Kawasari contribution in financial year ending 2020 (FY20) may not be as material, as the bulk of the profits are likely still back-loaded towards the tail-end of the contract based on the group's more conservative accounting policy for EPCIC contracts.

"Looking at the [recently] awarded Bokor CPP, the group reported an average loss of RM13 million over five of the past seven quarters for its heavy engineering.

"Nevertheless, we raised FY20-21E earnings by 51-56% following this sizeable contract win but cut FY19 to a loss as we foresee a continuing loss for its marine business unit.

The research house expects more details to be shared by the group when it releases its results on Aug 2.

At 10.34am, MHB jumped 7.47% or 6.5 sen to 93.5 sen for a market capitalisation of RM1.49 billion.

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