MMHE’s Jerun job win a positive

Keeping busy: A vessel in MMHE’s dry dock in Pasir Gudang, Johor. The firm is among a few oil and gas companies that have shown resilience in riding through the recent cycles of 2014 and 2020.

PETALING JAYA: The latest contract bagged by Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) in the Jerun gas field, offshore Sarawak, is a positive development towards replenishing its dwindling order book.

The offshore fabrication and marine repair service operator secured the contract from SapuraOMV Upstream (Sarawak) Inc to undertake the engineering, procurement, construction, transportation and installation, and hook-up and commissioning services for the SK408W Jerun development project, offshore Sarawak.

Value-wise, analysts said the contract is worth about RM1bil-RM1.5bil and would lift MMHE’s order backlog by slightly more than half to RM3bil.

It will keep the company busy until 2023.

Maybank IB Research expects the project to conservatively contribute about RM55mil-RM77mil in net profit, assuming a 5%-7% net margin.

It noted that the company is among a few oil and gas companies that have shown resilience in riding through the recent cycles of 2014 and 2020.

“We expect a 10% year-on-year earnings growth for financial year 2021 (FY21).

“Our model imputes RM1.4bil new jobs this year, on the back of the RM12bil tender pipeline (30:70 domestic-overseas split). We reiterate that MMHE remains a deeply undervalued stock, ” it said in a note to clients yesterday.

The research firm, which has a “buy” call on the counter with a 85-sen target price (TP), said that the stock trades at 0.5 times price-to-book value (P/BV). Its net cash stood at RM403mil or 25 sen per share, which is about 42% of its market cap.

BIMB Securities Research believes that the Jerun project would provide MMHE the required economies of scale to ensure the company returns to profitability in FY21-FY23.

BIMB, which has upped its TP to 83 sen (from 77 sen previously) 0.55 times thinks the recent stock price correction provides a good buying opportunity ahead of the new investment cycle in offshore projects.

The share price of MMHE had surged briefly above 70 sen last month as the market priced in talk that it may be the Jerun project.

However, UOB Kay Hian said it still sees trading angles on potential multiple contract wins as long as the price of oil does not fall below the US$50 per barrel level. That said, it does not expect MMHE to go higher versus the earlier peak.

On the other hand, RHB Research is maintaining its “sell” call on the stock although it is positive on the Jerun job win. However, it said the overall outlook for the marine segment remains uncertain due to the impact of Covid-19 on border restrictions and standard operating procedures, which may delay work and incur additional costs.

“We also remain cautious about the offshore fabrication business profitability despite higher work project recognition. MMHE scores 3.1 in our ESG (environmental, social, and governance) evaluation, and any offshore wind farm job win will potentially improve the overall score, in our view, ” it said in a report.

Work on the project will begin in the second half of the year and is expected to take three years to complete.

“Thus, we increase our FY21-FY23 earnings by 9%-19% after inputting this project into our forecast, ” it added.

Notably, the current price has surpassed RHB’s TP of 50 sen, which it had raised from 32 sen previously to reflect better-than-expected contract replenishments amidst better year-on-year oil prices in 2021.

The stock closed two sen up to 62 sen.

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