Stock Name: MHB
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: AMMB
Malaysia Marine & Heavy Engineering Holdings Bhd
(Feb 16, RM6.44)
Maintain buy at RM6.12 with revised fair value RM8.10 (from RM7.15): We maintain our 'buy' on Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE) but our higher earnings expectations have raised the stock's fair value to RM8.10 (from RM7.15) based on an unchanged FY12F PER of 25 times.
We have raised MMHE's FY12F/13F earnings by 13% due to a more optimistic pre-tax margin assumption ' up from 9% to 11% against 16% for Kencana in FY10 and 20% for Singapore's deepwater specialist Keppel FELS and Sembcorp Marine.
We are convinced about MMHE's radical re-rating due to: (i) Change in management with the appointment of Dominique de Soras from Technip's subsea division, who has extensive experience in implementing deepwater projects; (ii) Strong likelihood of a quick turnaround from the reaping of 'low-hanging fruit' efficiencies; (iii) Prolific wave of upcoming projects by June this year as half of MMHE's Pasir Gudang yard will be unutilised when the topside structure of Gumusut-Kakap floating production storage semi-submersible is lifted onto its hull; (iv) Most of MMHE's tenders of RM9 billion are more complex structures than the jobs undertaken by other domestic operators. Hence, we expect the new large contracts to set new margin benchmarks for Malaysia: and (v) Potential M&A plays on the back of the government-encouraged rationalisation of domestic fabricators. Among fabricators, we expect the strategic location of Sime Engineering's yards in Pasir Gudang and Teluk Ramunia to be the best option for MMHE.
We expect these new developments to catalyse MMHE's premium valuations even further given its heavy weight capitalisation of RM10 billion ' which could mean inclusion into the FBM KLCI.
We view that the recent slew of news flow on marginal fields has largely been factored into Kencana Petroleum's sharp re-rating over the past two months. Hence, we advocate investors to switch from Kencana to MMHE for new contracts windfalls and upcoming margin re-rating.
The stock currently trades at an attractive FY12F PER of 20 times, below SapuraCrest Petroleum's peak of 29 times in 2007. ' AmResearch, Feb 16
This article appeared in The Edge Financial Daily, February 17, 2011.
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: AMMB
Malaysia Marine & Heavy Engineering Holdings Bhd
(Feb 16, RM6.44)
Maintain buy at RM6.12 with revised fair value RM8.10 (from RM7.15): We maintain our 'buy' on Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE) but our higher earnings expectations have raised the stock's fair value to RM8.10 (from RM7.15) based on an unchanged FY12F PER of 25 times.
We have raised MMHE's FY12F/13F earnings by 13% due to a more optimistic pre-tax margin assumption ' up from 9% to 11% against 16% for Kencana in FY10 and 20% for Singapore's deepwater specialist Keppel FELS and Sembcorp Marine.
We are convinced about MMHE's radical re-rating due to: (i) Change in management with the appointment of Dominique de Soras from Technip's subsea division, who has extensive experience in implementing deepwater projects; (ii) Strong likelihood of a quick turnaround from the reaping of 'low-hanging fruit' efficiencies; (iii) Prolific wave of upcoming projects by June this year as half of MMHE's Pasir Gudang yard will be unutilised when the topside structure of Gumusut-Kakap floating production storage semi-submersible is lifted onto its hull; (iv) Most of MMHE's tenders of RM9 billion are more complex structures than the jobs undertaken by other domestic operators. Hence, we expect the new large contracts to set new margin benchmarks for Malaysia: and (v) Potential M&A plays on the back of the government-encouraged rationalisation of domestic fabricators. Among fabricators, we expect the strategic location of Sime Engineering's yards in Pasir Gudang and Teluk Ramunia to be the best option for MMHE.
We expect these new developments to catalyse MMHE's premium valuations even further given its heavy weight capitalisation of RM10 billion ' which could mean inclusion into the FBM KLCI.
We view that the recent slew of news flow on marginal fields has largely been factored into Kencana Petroleum's sharp re-rating over the past two months. Hence, we advocate investors to switch from Kencana to MMHE for new contracts windfalls and upcoming margin re-rating.
The stock currently trades at an attractive FY12F PER of 20 times, below SapuraCrest Petroleum's peak of 29 times in 2007. ' AmResearch, Feb 16
This article appeared in The Edge Financial Daily, February 17, 2011.
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