Accumulate TH Heavy Engineering, says CIMB Research

KUALA LUMPUR: CIMB Equities Research has advised investors to accumulate shares of TH Heavy Engineering (THHE) following the recent share price fall brought about by the soft second quarter. 

It said on Thursday THHE’s fabrication business was lumpy but it took comfort in the long-term nature of the floating production, storage and offloading (FPSO) business, which involved an eight +10 years US$372mil contract in May.

“Furthermore, the stock's valuations are undemanding at 9.0 times to 13 times FY15-16 earnings, lower than the sector average of 14 times to 16 times,” it said.

CIMB Research issued the report after THHE proposed to place out new shares of up to 10%, of which the first tranche of 5% or 52.796 million shares would be placed to Pelaburan Mara Bhd (PMB) at 80 sen a share. 

“The gross proceeds of RM42m from the 5% placement will be used to facilitate THHE's yard expansion and FPSO venture. The 5% placement is slated for completion by mid-October,” it said.

CIMB Research said PMB is an investment and asset management company which is a unit of Majlis Amanah Rakyat (MARA), a government agency. PMB is buying a stake in  THHE amidst the latter's operational improvement. 

To recap, THHE went through a rough patch in 2Q, prompting it to make RM9mil provisions for the fabrication and transport & installation businesses.

“However, we understand that the company has returned to the black in 3Q and aims to secure a sizeable fabrication contract by year-end to expand its order book of RM1.5bil at end-August. PMB will be THHE's third largest shareholder, after Lembaga Tabung Haji (LTH) (31.6%) and Tan Sri Quek (9.1%)," said the research house. 

After imputing the new shares from the 5% placement, the research house expects to lower its fully-diluted EPS by 1% for FY14, 4% for FY15 and 4% for FY16.

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