AmInvestment Research retains Hold for MMHE, cuts fair value


  • Business
  • Tuesday, 02 Aug 2016

MMHE is now tendering for RM5bil worth of new projects.

KUALA LUMPUR: AmInvestment Research is retaining its Hold recommendation on MALAYSIA MARINE AND HEAVY ENGineering Holdings (MMHE) with a lower fair value of RM1.

It said on Tuesday this was lower than the earlier RM1.25 a share due to a change in valuation methodology to a 40% discount to book valuation from its earlier enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) basis. 

“We have cut MMHE’s FY17F-FY18F earnings by 30%-50% as our order book assumptions have been reduced by 20%-40%. 

“Likewise, our earlier FY16F net profit of RM107mil has been reversed to a RM11mil loss,” it said. 

AmInvestment  Research said MMHE’s 1HFY16 loss of RM10mil (versus RM54mil net profit in 1HFY15) was far below expectations compared with street’s FY16F net profit of RM83mil. 

MMHE’s 2QFY16 revenue rose by 16% on-quarter to RM297mil as the group’s large projects – Malikai tension leg platform, Bergading structures and Kanowit hook up & commissioning – have reached towards the end of the completion cycle. 

 The research house said MMHE had already submitted RM1.8bil tenders, of which 90% are from local projects. This does not include a total RM7.4bil potential orders, in which two-thirds are made up of local contracts, likely to materialise in 2016-2017.

“In our view, these tender prospects are currently insufficient to re-catalyse optimism for an acceleration in order book momentum as upstream projects may be delayed given the present crude oil price uncertainty. 

“There is a strong likelihood that the group’s overall order book trajectory may continue to be flat as RAPID’s major refinery contracts have already been awarded. 

“However, we understand that the major RAPID packages yet to be awarded are for the petrochemical projects. 

“Hence, we expect MMHE, as the country’s leading yard which has secured six RAPID sub-contracts to date, to be partly cushioned from global project deferrals and cost cut-backs. 

“The stock current trades at a high FY17F price-to-earnings of 27 times, well above its two-year average of 16 times. There is a possibility that there may be further asset impairments towards the year-end if crude oil prices remain depressed,” it said.

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