MMHE’s deal with Saudi Aramco draws positive views


PETALING JAYA: Sentiment on Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) remains positive in analysts’ view as the signing of the deal with Saudi Aramco will offer MMHE an exposure to a constant US$3bil tenders opportunity per annum, according to Maybank IB Research.

MMHE, via a consortium with TechNipFMC, bagged a six-year long contract with Saudi Aramco.

The agreement with an option to extend for another six years, entails engineering, procurement, fabrication, transportation, and installation of offshore facilities in support of Saudi Aramco’s Offshore Maintain Potential Programme, as well as other works to be executed within the waters of Saudi Arabia.

Analysts from Maybank IB Research said,

“This is a significant breakthrough to its regional aspiration, which has been an objective since its strategic tie-up with Technip a few years back. “Winning these sizeable new jobs at RM1bil and above is a short term catalyst.” AffinHwang Capital analysts are “long-term positive on the long-term agreement with Saudi Aramco as this would allow MMHE to bid for jobs in the Middle East instead of predominantly relying on domestic works in the past.”

BIMB Research also expects the group’s earnings to turn around in forcast 2019 (2019F), implying 21% compound annual growth rate (CAGR) over the forecasted period of 2017 to 2021 (2017-21F).

“Our forecast factors in the Kasawari CPP development project, Aramco fabrication job and a stronger marine repair and conversion unit (MBU) income with the expansion of the third dry docking (DD3) due for completion in the second quarter of 2020 (Q2’20),” BIMB analysts said.

The research house also expects oil companies to proceed with development projects after years of underinvestment following crude oil price collapse in 2014 to 2015 with Aramco having a massive capex spending, estimated at US$3bil per annum, to support the In-Kingdom Total Value Add (IKVTA) initiative.

However, AffinHwang Capital stated that international tenders are competitive in nature and make no changes to its earnings forecast following the two developments, as the value of the contract awarded was relatively small at around RM50mil.

This agreement may also signal a rerating catalyst for the group as Kenanga Research previously expected MMHE to incur losses in its financial year 2018 (FY18) due to lower-than-expected dry docking activities coupled with unanticipated upfront VO cost and wider-than expected losses from its heavy engineering unit.

 

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