Malaysia Marine and Heavy Engineering Holdings Bhd (Dec 7, RM5.61)
Downgrade to hold with lowered target price of RM5.70 from RM8: The delay in the rollout of projects, a likely setback at Sime Darby Bhd’s yard, grey visibility at Turkmenistan and higher tax rates are the four key reasons that compel us to cut 2011 to 2013 earnings forecasts by 9% to 29%.
The slower execution will constrain available yard space and could see MHB missing out on some projects in 2012. Against this backdrop, we cut our target price (TP) to RM5.70 (20 times 2013 price-earnings ratio [PER] or -29%). We also downgrade our call on the stock due to fair valuations at this juncture although we remain positive over its longer-term prospects.
We gather that the Gumusut-Kakap floating production system (FPS) project could be delayed by a year and is only expected to be rolled out in 2H13. Revenue recognition is set to slow in 2012 with the outstanding RM464 million works for this project expected to be booked in over an extended period into 2013.
Works recognition has already slowed — MHB recognised RM54 million revenue from this project in 2QFY12E against RM191 million and RM199 million per quarter over the previous six months.
Sime Darby’s yard is unlikely to contribute to MHB until 2014. While the proposed acquisition is still on target to be completed by 1Q12, we think MHB will not “inherit” any of the projects in hand at Sime’s Pasir Gudang yard (Kebabangan, Oil and Natural Gas Corp Ltd). MHB is likely to sub-let the yard space to Sime instead until the existing projects are completed by 2013, earning low rentals in return (from 2Q12 to end-2013).
Hence, Sime’s yard will only contribute positively to MHB’s earnings from 2014 and not 2013, as we had initially expected. Sime’s 47ha yard will add 31% to MHB’s existing yard capacity of 150ha.
We now expect negligible contribution from the Sime Darby yard in 2012/13 against earlier projected RM30 million to RM150 million in net profit contribution per year. In addition, we now project zero associate profit contribution in 2012/13 at its Turkmenistan venture (previously RM29 million per year) on a more challenging order book replenishment outlook. Our new forecasts also assume a higher tax rate for the group on unabsorbed allowances on lower yard utilisation. — Maybank IB Research, Dec 7
This article appeared in The Edge Financial Daily, December 8, 2011.
Downgrade to hold with lowered target price of RM5.70 from RM8: The delay in the rollout of projects, a likely setback at Sime Darby Bhd’s yard, grey visibility at Turkmenistan and higher tax rates are the four key reasons that compel us to cut 2011 to 2013 earnings forecasts by 9% to 29%.
The slower execution will constrain available yard space and could see MHB missing out on some projects in 2012. Against this backdrop, we cut our target price (TP) to RM5.70 (20 times 2013 price-earnings ratio [PER] or -29%). We also downgrade our call on the stock due to fair valuations at this juncture although we remain positive over its longer-term prospects.
We gather that the Gumusut-Kakap floating production system (FPS) project could be delayed by a year and is only expected to be rolled out in 2H13. Revenue recognition is set to slow in 2012 with the outstanding RM464 million works for this project expected to be booked in over an extended period into 2013.
Works recognition has already slowed — MHB recognised RM54 million revenue from this project in 2QFY12E against RM191 million and RM199 million per quarter over the previous six months.
Sime Darby’s yard is unlikely to contribute to MHB until 2014. While the proposed acquisition is still on target to be completed by 1Q12, we think MHB will not “inherit” any of the projects in hand at Sime’s Pasir Gudang yard (Kebabangan, Oil and Natural Gas Corp Ltd). MHB is likely to sub-let the yard space to Sime instead until the existing projects are completed by 2013, earning low rentals in return (from 2Q12 to end-2013).
Hence, Sime’s yard will only contribute positively to MHB’s earnings from 2014 and not 2013, as we had initially expected. Sime’s 47ha yard will add 31% to MHB’s existing yard capacity of 150ha.
We now expect negligible contribution from the Sime Darby yard in 2012/13 against earlier projected RM30 million to RM150 million in net profit contribution per year. In addition, we now project zero associate profit contribution in 2012/13 at its Turkmenistan venture (previously RM29 million per year) on a more challenging order book replenishment outlook. Our new forecasts also assume a higher tax rate for the group on unabsorbed allowances on lower yard utilisation. — Maybank IB Research, Dec 7
This article appeared in The Edge Financial Daily, December 8, 2011.
