This article first appeared in The Edge Financial Daily on December 4, 2019
Malaysia Marine and Heavy Engineering Holdings Bhd
(Dec 3, 89 sen)
Maintain hold with an unchanged target price (TP) of 89 sen: Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) announced that it had been awarded two contracts. Firstly, a contract from Petronas Carigali Sdn Bhd (PCSB) for the provision of engineering, procurement, construction, installation and commissioning for the Bekok Oil Project. This includes the supply and installation of new BEDP-A and BEDP-B well head platforms consisting of topsides, substructures and bridges linking each of the topside with the existing Bekok-A and Bekok-B platforms. The targeted project duration is said to be nine months.
Secondly, a contract from Hess Exploration and Production Malaysia BV for the Bergading Central Processing Platform Mercury Removal Unit (CPP-MRU) Integration Project. This award covers engineering, procurement, construction and commissioning works for the Bergading MRU module. The project duration and contract value are not disclosed.
We are positive about the announcement. We understand that the Bekok well head platform size is similar to the recent sail-away (Tembikai). Thus, we estimate these awards are collectively worth about RM200 million to RM300 million. Take note our channel check reveals well head platforms are typically awarded at RM100 million to RM150 million per unit.
According to the Petronas Activity Outlook 2019 to 2021, Petronas has indicated the fabrication work of one or two well head platforms and one or two central processing platforms are to be awarded this year and subsequently, increasing to six to 13 well head platforms in 2020. The mini bids will be in batches depending on the Petroleum Agreement Contractors’ working schedule.
Our forecasts are unchanged as we had factored in RM1 billion in order book replenishment for financial years 2020 and 2021 (FY20-FY21). Our TP is maintained at 89 sen pegged at 0.6 times FY20 book value per share.
We expect MMHE to deliver better results for the fourth quarter of 2019 (4Q19) and turn around in FY20. However, we are keeping our “hold” call for now given a run-up in MMHE’s share price — 63.3% year to date — and await further signs of a continuous improvement in order book execution. — Hong Leong Investment Bank Research, Dec 3