Stock Name: MHB
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: AMMB
Malaysia Marine and Heavy Engineering Holdings Bhd
(May 30, RM7.47)
Maintain buy at RM7.30 with higher fair value of RM8.25 (from RM8.10): We maintain our 'buy' on Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE) but with a higher fair value of RM8.25 (against RM8.10 previously), based on an unchanged FY12F price-earnings ratio (PER) of 25 times.
We have raised MMHE's FY12F to FY14F earnings by 2% to 5% as we accelerate the recognition of the group's order book due to its expanding fabrication capacity.
We are excited by MMHE entering into a MoU with Sime Darby Engineering to acquire its 130-acre Pasir Gudang yard for RM399 million cash, as it will radically transform Malaysia's fabrication landscape.
Including Petroliam Nasional Bhd's (Petronas) Teluk Ramunia yard, MMHE will have access to the country's largest domestic fabrication yard of 672 acres, which is 3.5 times Kencana Petroleum Bhd's current 192 acres.
In comparison with MMHE's current market capitalisation of RM12 billion, its existing yard is being valued at RM720 psf ' 10 times the RM70 psf being paid for the Pasir Gudang yard.
While the Pasir Gudang yard will be partly utilised for its existing Oil and Natural Gas Corp and Kebabangan jobs, we believe the Pasir Gudang and Petronas' Ramunia yards offer ample additional fabrication capacity which will underpin MMHE's re-accelerating earnings momentum and growing deepwater expertise.
MMHE remains one of our top picks for the oil and gas sector due to:
(1) Capacity expansion stemming from Sime Darby Engineering's Pasir Gudang yard, which will accelerate order book recognition, drive margin efficiencies and enhance MMHE's deepwater capabilities.
(2) Further upgrades in consensus margin assumptions given the possibility of a quick turnaround from the reaping of 'low-hanging fruit' efficiencies under the new managing director/CEO from Technip's subsea division.
(3) Significant additions to the group's net order book of RM3 billion from the prolific wave of upcoming projects by 2H11 as half of MMHE's Pasir Gudang yard will be unutilised when the topside structure of the Gumusut-Kakap floating production storage semi-submersible is lifted onto its hull.
(4) New margin benchmarks for MMHE's tenders of over RM5 billion'' comprising more complex structures than the jobs undertaken by other domestic operators.
The stock currently trades at an attractive FY12F PER of 22 times, below SapuraCrest Petroleum Bhd's peak of 29 times in 2007. ' AmResearch, May 30
This article appeared in The Edge Financial Daily, May 31, 2011.
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: AMMB
Malaysia Marine and Heavy Engineering Holdings Bhd
(May 30, RM7.47)
Maintain buy at RM7.30 with higher fair value of RM8.25 (from RM8.10): We maintain our 'buy' on Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE) but with a higher fair value of RM8.25 (against RM8.10 previously), based on an unchanged FY12F price-earnings ratio (PER) of 25 times.
We have raised MMHE's FY12F to FY14F earnings by 2% to 5% as we accelerate the recognition of the group's order book due to its expanding fabrication capacity.
We are excited by MMHE entering into a MoU with Sime Darby Engineering to acquire its 130-acre Pasir Gudang yard for RM399 million cash, as it will radically transform Malaysia's fabrication landscape.
Including Petroliam Nasional Bhd's (Petronas) Teluk Ramunia yard, MMHE will have access to the country's largest domestic fabrication yard of 672 acres, which is 3.5 times Kencana Petroleum Bhd's current 192 acres.
In comparison with MMHE's current market capitalisation of RM12 billion, its existing yard is being valued at RM720 psf ' 10 times the RM70 psf being paid for the Pasir Gudang yard.
While the Pasir Gudang yard will be partly utilised for its existing Oil and Natural Gas Corp and Kebabangan jobs, we believe the Pasir Gudang and Petronas' Ramunia yards offer ample additional fabrication capacity which will underpin MMHE's re-accelerating earnings momentum and growing deepwater expertise.
MMHE remains one of our top picks for the oil and gas sector due to:
(1) Capacity expansion stemming from Sime Darby Engineering's Pasir Gudang yard, which will accelerate order book recognition, drive margin efficiencies and enhance MMHE's deepwater capabilities.
(2) Further upgrades in consensus margin assumptions given the possibility of a quick turnaround from the reaping of 'low-hanging fruit' efficiencies under the new managing director/CEO from Technip's subsea division.
(3) Significant additions to the group's net order book of RM3 billion from the prolific wave of upcoming projects by 2H11 as half of MMHE's Pasir Gudang yard will be unutilised when the topside structure of the Gumusut-Kakap floating production storage semi-submersible is lifted onto its hull.
(4) New margin benchmarks for MMHE's tenders of over RM5 billion'' comprising more complex structures than the jobs undertaken by other domestic operators.
The stock currently trades at an attractive FY12F PER of 22 times, below SapuraCrest Petroleum Bhd's peak of 29 times in 2007. ' AmResearch, May 30
This article appeared in The Edge Financial Daily, May 31, 2011.
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