It is crucial for MMHE to improve on its operational efficiency to become profitable, a feat that it has not achieved from FY18

By NUR HANANI AZMAN / graphic by MZUKRI MOHAMAD

HONG Leong Investment Bank Bhd (HLIB) maintains a mixed view on Malaysia Marine and Heavy Engineering Holdings Bhd’s (MHB) contract win from SapuraOMV Upstream (Sarawak) Inc.

MHB secured a contract from SapuraOMV to undertake engineering, procurement, construction, transportation and installation, and hook-up and commissioning services (EPCIC) for the SK408W Jerun development project offshore Sarawak on Tuesday.

“Our channel checks suggested that the project is estimated to be worth between RM1 billion and RM1.5 billion with a duration of about three years. We believe the award of the Jerun project to Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) can be attributed to Sapura’s inability to undertake the project internally as its yard is almost fully utilised for existing projects,” said analyst Low Jin Wu.

While contract wins should be inherently positive to MHB, this is a mixed bag as past large-scale projects have encountered hiccups, said Low.

The Jerun project would bring MMHE’s orderbook to about RM3 billion, representing an orderbook cover of about two times.

“Despite its robust orderbook, we believe it is crucial for MMHE to improve on its operational efficiency to become profitable, a feat that it has not achieved from the financial year 2018 (FY18)-FY20.

“Nevertheless, we believe the recent trend of contract awards in the Malaysian oil and gas (O&G) space is a leading indicator towards a recovery in the O&G sector,” said Low.

HLIB upgraded MHB’s FY22 forecast by 10% to factor in the Jerun contract win and maintained FY21 earnings assumption.

“We chose to be conservative on our earnings assumptions for the Jerun project due to its poor track record in the execution and delivery of its previous large-scale projects,” he noted.

The research outfit maintained a ‘Hold’ call on MHB with a higher target price of 62 sen based on 0.5 time (from 0.35 time) FY21 book value per share, which is -0.5SD below its five year historical mean price-to-book.

The EPCIC contract comprises the construction of a 15,000 metric tonnes (MT) top-side, 10,000MT jacket and 5,000MT piles of central processing platform.

MHB MD and CEO Pandai Othman said the award is an acknowledgement of the company’s technical competencies and commercial competitiveness in the industry, and demonstrates MHB’s capability in providing integrated and value-added solutions.

“2021 has been coined as our recovery year and what a better way to start it other than with a major EPCIC project like Jerun. With this being our first project with SapuraOMV, we hope this marks the beginning of a long-lasting business relationship and mutual support between the two companies,” he said in a statement on Tuesday.