Period 3Q12/9M12
Actual vs. Expectations
The 3QFY12 net profit of RM8.1m
brought 9MY12 net profit to RM141.6m. This was below both our (RM229.2m) and
the consensus (RM306.8m) earnings, accounting for 47.0% and 46.2% respectively.
Dividends No dividend was declared.
Key Results Highlights QoQ, the revenue was down (-12.8%) due to normalised
revenue recognised on the Kebabangan project in 3QFY12. 2QFY12 recognised six
month’s worth of revenue, as MMHE only started its accounting recognition only
after the 25% completion milestone. Net profit meanwhile was down a whopping
(-85.4%) due mainly to: 1) provisions for variation orders in regards FPSO Cendor
project that led to losses of RM1.8m for the offshore division; and 2)
provisions booked in for tax costs from MMHE’s Turkmenistan operations (one of
the JCEs).
YoY, despite the higher revenue (+81.8%), the net profit was
down (-90%) again due to the same reasons mentioned above.
Outlook Order
book now stands at RM2.3b (from RM2.7b in June 2012). This is inclusive of the
newly won Damar project worth RM160m.
We are negative on the short term prospects of MMHE as 1)
the potential provisions on the FPSO Cendor project are still likely to
continue; 2) the Kebabangan project does not seem to have significantly high
profit margins and 3) the order intake, especially on the Turkmenistan front, continues
to be sluggish.
The Malikai project is a likely win, but it will potentially
have a lower-than-expected contribution as it would be executed via a JV
(likely 50:50) with Technip.
The stock is also highly susceptible to a de-rating in the
event of it being dropped from the FBMKLCI Index due to its current low ranking
(~0.44%).
Change to Forecasts We are trimming our FY12-13 earnings by
31.6% and 4.8% respectively on the back of lower EBIT margins for the offshore
division given that the FPSO Cendor project could potentially see more provisions
that could continue to 2013 (targeted completion date is 3QFY12).
Rating MAINTAIN
UNDERPERFORM
Valuation Our
target price has been reduced to RM4.02 based on a 18x targeted PER on our
revised CY13 EPS of 22.3 sen.
Risks Higher
than expected project wins and an acceleration in its project executions.
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