MHB expecting to book some VOs from completed projects

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Malaysia Marine and Heavy Engineering Holdings Bhd
(Nov 6, RM2.15)
Maintain “buy” with a target price (TP) of RM2.50:
Malaysia Marine and Heavy Engineering Holdings’ (MHB) year-to-date (YTD) earnings fell 15.7% as compared with the previous year due to fewer projects being undertaken by its offshore business unit (OBU) segment, and also lower contributions for liquefied natural gas (LNG) vessels and rigs/special vessels from marine business unit (MBU) segment.

Earnings before interest and taxation (ebit) margin declined 46.7% YTD due to completion of projects that have been delivered for OBU and new projects that have yet to commence, as well as lower margin projects from the MBU.

MHB has secured two contracts as of late, amounting to approximately RM350 million, raising their existing order book amount to RM1.68 billion. The first contract is for procurement, construction and hook-up commissioning (PCC) for Besar-A development, scheduled for delivery to Petronas Carigali by the second half of financial year 2015 (2HFY15). The second contract is for the fabrication of central processing platform jackets, wellhead platform, jacket and connecting bridge for North Malay Basin Bergading Complex, scheduled for completion by 1HFY16.

Both will be fabricated in MHB west yard .

Overall, contributions are expected to pick up once Malikai (41% completed) and SK316 (29% completed) enter later stages of the project as MHB has started adopting a more conservative revenue recognition approach highlighted previously, as well as from recent awarded contracts. Besides the ongoing projects, MHB is still expecting to book some variation orders (VOs) contributions from the completed projects. We maintain our “buy” call on MHB, with a TP of RM2.50 based on price-earnings ratio of 20 times on FY15 earnings per share of 12.5sen. — BIMB Securities Research, Nov 6

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This article first appeared in The Edge Financial Daily, on November 7, 2014.