MHB’s 1HFY11 results were within expectations. Overall, its 2QFY11 performance
was better q-o-q as PBT rose 6.8% q-o-q to RM101.5m with the benefit of the
fabrication of higher margin products. Maintain Buy with a higher target price of
RM5.35 (previously RM4.54), based on a higher PER of 20x FY12 EPS. We have
conferred a higher valuation in line with our increasingly bullish view on the O&G
industry as it begins to see more new jobs being awarded, from which we believe the
fabricators are the first in line to benefit.
Within expectation. MHB’s 1HFY11 results were within consensus and our expectations,
making up 49% and 45% of the FY11 forecasts. Overall, the 2QFY11 performance was
better q-o-q, with its 2QFY11 PBT rising 6.8% q-o-q to RM101.5m following the fabrication
of higher margin products. The 2QFY11 net profit was, however, down 29.5% q-o-q, which
we believe was due to the timing in recognition of tax incentives, with the 2QFY11 effective
tax rate coming in higher at 23% versus its tax positive position in 1QFY11. To recap, MHB
was granted investment tax allowance (ITA) by MIDA for qualifying expenditure incurred on
its yard optimization program over a period of 10 years from 2006. Finally, on a YTD
comparison, its 1HFY11 PBT soared 182.3% owing to the fabrication of higher margin
products.
Maintain Buy. We have upgraded our target price for the company to RM5.35 based on a
higher PER of 20x FY12 EPS (previously RM4.54 based on a PER of 17x FY12 EPS). Our
higher valuation is in line with our more bullish view of the O&G industry that may be seeing
more new contracts being awarded soon, from which we believe the fabricators would be in
the forefront to benefit compared to O&G support services providers. Also, based on
Kencana’s historical share price and the historical PER of 20x the company has enjoyed all
this while, we believe MHB deserves the same valuation if not better since it is the only
Petronas licensed fabricator with deepwater fabrication capability. Finally, we understand
that MHB is supported by a robust orderbook of RM5.9bn and tenderbook worth RM9.0bn.
What about ECM LIBRA???
Malaysia Marine and Heavy Engineering Holdings Bhd
(Nov 23, RM4.48)
Maintain buy at RM4.50 with revised target price of RM5.19 (from RM4.72): Annualised net profit made up 46% of our full-year estimates and 49% of consensus. While profit was down 30% quarter-on-quarter (q-o-q), on a year-on-year (y-o-y) basis, the group's net profit for 1HFY11 has ballooned by 184.5%. As expected, revenue has come in lower this year as the Turkmenistan Phase 1 job is near completion. However, the group's net margins have grown to 8.6% for 1HFY11 compared with only 2.1% in 1HFY10, as the Gemusut Kakap FPS (floating production system) job is in the fabrication stage. The second quarter also marks the end of the Tangga Barat processing platform job which was worth RM848 million, which also explains the drop in earnings on a q-o-q basis.
We believe that MMHE's earnings will be good y-o-y, but not exciting q-o-q from here into mid-FY12 as it reaches the tail end of its existing RM5 billion order book. We expect at least RM4 billion of job replenishment to kick in 1HCY11. Jobs that we prospect include Malaysia's first Tension Leg Platform for which MMHE has been approved as the yard of choice. What waits to be decided for that job is the design contractor, which appears to be a race between Modec, Floatec and SBM Offshore. We also expect the group to snag some shallow water jobs and marine conversion jobs coming from the Petronas re-gassing project. Along with that, we view that once Phase 1 is completed in Turkmenistan, Phase 2 should come into play.
We have some indications that the marine segment may see improvement come next year with revived global FPSO demand and also repair jobs. As such, we are upping our estimates slightly to reflect this improvement. Our FY11 estimates remain unchanged and FY12F numbers are raised by 13.7% and FY13F by 1%. Our estimates for the E&C segment remain unchanged and continue to be conservative as we believe that large, new, long-term projects would not contribute significantly in their initial year.
We continue to rate MMHE a 'buy' and raise our target price in line with our earnings upgrade. We continue to peg CY11 EPS to a PER of 20 times, which represents the average of peak cycle industry PERs, to derive a target price of RM5.19 (previously RM4.72). ' ECM Libra Investment Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2010.
What about ECM LIBRA???
Malaysia Marine and Heavy Engineering Holdings Bhd
(Nov 23, RM4.48)
Maintain buy at RM4.50 with revised target price of RM5.19 (from RM4.72): Annualised net profit made up 46% of our full-year estimates and 49% of consensus. While profit was down 30% quarter-on-quarter (q-o-q), on a year-on-year (y-o-y) basis, the group's net profit for 1HFY11 has ballooned by 184.5%. As expected, revenue has come in lower this year as the Turkmenistan Phase 1 job is near completion. However, the group's net margins have grown to 8.6% for 1HFY11 compared with only 2.1% in 1HFY10, as the Gemusut Kakap FPS (floating production system) job is in the fabrication stage. The second quarter also marks the end of the Tangga Barat processing platform job which was worth RM848 million, which also explains the drop in earnings on a q-o-q basis.
We believe that MMHE's earnings will be good y-o-y, but not exciting q-o-q from here into mid-FY12 as it reaches the tail end of its existing RM5 billion order book. We expect at least RM4 billion of job replenishment to kick in 1HCY11. Jobs that we prospect include Malaysia's first Tension Leg Platform for which MMHE has been approved as the yard of choice. What waits to be decided for that job is the design contractor, which appears to be a race between Modec, Floatec and SBM Offshore. We also expect the group to snag some shallow water jobs and marine conversion jobs coming from the Petronas re-gassing project. Along with that, we view that once Phase 1 is completed in Turkmenistan, Phase 2 should come into play.
We have some indications that the marine segment may see improvement come next year with revived global FPSO demand and also repair jobs. As such, we are upping our estimates slightly to reflect this improvement. Our FY11 estimates remain unchanged and FY12F numbers are raised by 13.7% and FY13F by 1%. Our estimates for the E&C segment remain unchanged and continue to be conservative as we believe that large, new, long-term projects would not contribute significantly in their initial year.
We continue to rate MMHE a 'buy' and raise our target price in line with our earnings upgrade. We continue to peg CY11 EPS to a PER of 20 times, which represents the average of peak cycle industry PERs, to derive a target price of RM5.19 (previously RM4.72). ' ECM Libra Investment Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2010.
2 comments
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