Tuesday 18 September 2012

Malaysia Marine & Heavy Engineering - May miss out on Rotan FLNG HOLD


- We maintain our HOLD call on Malaysia Marine & Heavy Engineering Holdings (MMHE), but with a reduced fair value of RM4.60/share (vs. an earlier RM5.15/share) based on an unchanged rolled-forward FY13F PE of 20x – 10% below Kencana Petroleum’s peak of 22x in 2007.

- We have lowered MMHE’s FY13F-FY14F net profits by 11%-15% due to the RM1bil-RM2bil decrease in our new fabrication order assumptions to RM3bil-RM5bil as the group is likely to miss out on securing any of the fabrication jobs for Petronas’ two upcoming floating liquefied natural gas vessels (FLNG).

- Japanese engineering giants JGC Corporation and Toyo Engineering & Construction have confirmed that they have been awarded front-end engineering and design (FEED) contracts for the Rotan FLNG – Malaysia’s second unit after the Kanowit FLNG. This FLNG will develop the Rotan and Biris fields, off Sarawak, in Block H operated  by Murphy Oil of the US.

- The FEED study for the Rotan FLNG vessel, which will have an annual capacity of 1.5mil tonnes, is scheduled for completion in 2Q2013. Upstream reported that Petronas will later select one of the two consortiums for the engineering, procurement, construction, installation and commissioning of the FLNG vessel, which is scheduled to start production in 2016.

- This could mean that MMHE, which is still trying to complete the long-delayed Gumusut-Kakap floating production storage semi-submersible, is unlikely to secure any fabrication contract for the two fast-tracked FLNG projects from Petronas. 

- Recall that MMHE had also earlier missed out on the engineering, construction and fabrication contract for the Kanowit FLNG, which was awarded to Technip and Korea’s Daewoo Shipbuilding & Marine Engineering.

- While the group is actively involved in 15 tenders worth up to RM5bil, these include overseas projects such as the Browse jackets in Australia for Woodside Petroleum and the 6,000 tonne platform for Central Diyabekir field in Turkmenistan – for which the success rate and rollout timeline are not as visible vis-a-vis domestic jobs. 

- After our earnings cut, the stock currently trades at an unexciting FY13F PE of 21x vs. 18x for oil & gas stocks with market capitalisation of over RM1bil. 

- There is a strong possibility that MMHE will be dropped from the FBMKLCI index, with the inclusion of SapuraKencana Petroleum and FELDA Global Ventures Holdings.

Source: AmeSecurities

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