Friday, August 5, 2011

UOB Kay Hian sees stronger newsflow for MMHE by year-end

KUALA LUMPUR: UOB Kay Hian Malaysia research expects stronger newsflow for Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) towards year-end.

It said on Friday, Aug 5 this would occur after the Gumusut's floating production system (FPS) superlift exercise and the completion of the yard acquisition.

'MMHE remains the only Malaysian major oil & gas fabrication player who has yet to announce a major contract win in this upcycle. Capacity constraint has prevented it from taking on more projects, which will no longer be an issue once the Gumusut FPS is delivered and the yard acquisition is concluded,' it said.

UOB Kay Hian research lowered its target price from RM8.80 to RM8.60. This was a 12.4% upside from Thursday's closing price of RM7.65.

It said MMHE's share price has retreated 13% from its recent high. The recent sell-down was unwarranted. Crude oil prices (Brent) being the single most important determinant to the sector's valuation is still holding steadily at around US$110/barrel.

'MMHE could re-rate upwards once its capacity constraint issue is resolved, enabling it to take on new contracts,' it said.

The superlift of its Gumusut FPS topside on to its hull by end-August is expected to relieve the currently tight yard space faced by MMHE. The FPS alone takes about 50%-60% of its yard space, and the lifting of the topside will reduce the space occupied by the FPS by half.

Measured in deadweight tonnage, the Gumusut FPS has taken up more than 54% of MMHE's tonnage capacity. The Gumusut FPS is expected to be delivered in 2Q12.

UOB Kay Hian research said there were no red flags thus far that could derail the Pasir Gudang yard acquisition. Due diligence carried out for Sime Darby's Pasir Gudang yard has been extended for another month and this may have caused some concerns, causing share price to fall from its recent high.

A decision on the acquisition will be made in September. The acquisition of Sime Darby yard is important as it could allow MMHE to increase its capacity by 46%.

Earnings in the next quarter will come in largely in line without any positive surprises. The only major contract secured by MMHE in 2Q11 was the Floating Storage Unit (FSU) conversion contract from its parent MISC valued at around RM100 million.

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