RHB Investment Bank (RHB IB) is upbeat on Malaysia Marine & Heavy Engineering Bhd’s (MMHE) latest contract win as it further strengthens the group’s position in the heavy engineering space.
“It also marks an entry into the growing windfarm market,” RHB IB said in its Malaysia Company Update today (Nov 30).
Thus, the research house maintains its BUY call and an unchanged 60 sen TP, 22% upside, pegged to 0.6x FY24 P/BV (+1.5SD from the 5- year mean), with a 4% ESG discount based on its in-house methodology
This is due to MMHE’s 2.8 ESG score, which is two notches below the country median.
“Due to MMHE’s loss-making track record, we project a conservative EBIT margin of 1%, which translates to RM12 million in earnings.
“However, as the project will only start in 2025, and is slightly lower than our estimated RM1.5 billion, we adjust our earnings to widen FY23’s loss by 8.5% to RM147.9 million and decrease our FY24F-25F earnings by 10-5%,” it added.
The research house noted that MMHE’s wholly-owned subsidiary Malaysia Marine & Heavy Engineering Sdn Bhd has secured a total of RM1.2 billion subcontract from IJmuiden Ver Alpha Project from Petrofac International (UAE)for the EPC of an offshore substation (OSS) high voltage direct current or HVDC platform in the Netherlands.
“This OSS platform comprises a topside weighing a total of 30,000 tonnes, which includes overall equipment and a 10,000 tonnes jacket.”
The duration of the subcontract is about 54 months, with fabrication expected to commence in 2025, with the detail design and procurement stages to be done by the client.
RHB IB view the contract win as a positive as it provides MMHE entry into the offshore windfarm landscape. If successfully executed, this will open up new avenues for growth in the windfarm sector its view.
“This is the group’s second win for the year, totalling to MYR2.6bn, and we estimate the contract to bring its orderbook to a total of RM6.9 billion.
“Other projects include Rosmari Marjoram (awarded in Sep 2022), the Kasawari Carbon Capture & Sequestration (CCS), which was awarded in Nov 2022), and the abovementioned CPOC job.
“As of 3Q23, MMHE’s tender book stood at between RM2 and 3 billon. However, we are not concerned over the smaller value, given that the group’s current projects on hand provide earnings visibility up to FY25,” it said.
The key downside risk to the research house’s call include delays in execution, higher material costs, and labour shortages.
