RHB Research said it is upbeat about MMHE’s latest contract win as it further strengthens the group’s position in the heavy engineering space.
PETALING JAYA: Malaysia Marine and Heavy Engineering Holdings Bhd
(MMHE) kicked off 2023 on a good start having secured an engineering, procurement, construction and installation (EPCI) contract worth about RM1.4bil.
Analysts said the job win is a positive development and see the group securing more in the future on the back of an oil and gas sector recovery.
According to RHB Research, this was MMHE’s third contract win, after having scored two projects in the first half of 2022 (1H22).
With the latest contract from Carigali-PTTEPI Operating Co Sdn Bhd (CPOC), MMHE’s order book now stood at RM7.7bil, which is at a record high, according to the research firm.
“We are upbeat about MMHE’s latest contract win as it further strengthens the group’s position in the heavy engineering space.
“We believe both its engineering and marine segments are set to jointly record a three-year earnings at a compound annual growth rate of 86.9% over financial year 2022 (FY22) till FY25,” RHB Research said in a report.
Construction works on the CPOC project will take about 22 months, with the first steel cut expected in the third quarter of 2023.
According to RHB Research, the group’s management guided that construction will be done in the east yard, which is undergoing a reactivation process due to the anticipation of more jobs coming in.
It is expected that wind farm projects will take up 60% of yard utilisation, the research firm added.
However, due to the group’s loss-making track record, RHB Research is projecting a conservative earnings before interest and taxes (Ebit) margin of 1%, which translates to about RM14mil in earnings.
It has also imputed another RM1bil order book replenishment assumption for FY23 and following this, increased FY23-FY25 earnings estimates by 3%, 4% and 6%.
Its target price for the stock remains unchanged at 85 sen.
Meanwhile, Maybank Investment Bank (Maybank IB) Research said the RM1.4bil CPOC contract was reflective of a market upcycle and accounted for 70% of the research firm’s financial year new job wins and one-quarter of Ebit forecast for FY23-FY24.
“The possibility of MMHE surpassing our RM2bil estimate cannot be ruled out now. We continue to remain positive on MMHE. Delivering earnings to expectation with improved margins and a decent dividend payout scenario is a catalyst for re-rating.”
It said MMHE should be able to deliver RM42mil to RM70mil in Ebit from this project alone in FY23-FY24, based on a 3% to 5% margin estimate.
“In turn, this would cover 23% to 36% of our Ebit estimate of RM91mil to RM98mil per year over the next two years.”
It also noted that MMHE is in a net cash position and its positive free cashflow is another key attribute.
Maybank IB also has a 85 sen target price on the stock, based on 0.8 times enterprise value over the RM1.2bil order backlog.
