Malaysia Marine & Heavy Eng - Poised for Turkmenistan Phase 2 contract Buy

- We reiterate BUY on Malaysia Marine & Heavy Engineering Holdings (MMHE), but with an unchanged fair value of RM6.50/share, based on an unchanged FY12F PE of 22x – at parity to Kencana Petroleum’s peak in 2007.

- Upstream reported that a joint bid from MMHE and Turkeybased Ilk Construction is understood to have emerged as the frontrunner during the commercial round for the engineering, procurement and construction contract of the 6,000-tonne Central Diyabekir wellhead platform in Turkmenistan. The value of the contract was not revealed.

- Ilk Construction had earlier secured a US$78mil contract from Petronas in March this year to procure, construct, hook-up, commission and tie-in the West Diyabekir wellhead platform to the facilities in the Magtymguly field in the phase two development of the Block 1 oil and gas project off Turkmenistan. 

- Ilk Construction will also undertake the modification to the producing Magtymguly collector riser platform-A (MCR-A), the existing mobile offshore production unit and floating storage and offloading vessel.

- The tender also attracted participation from at least two other group bids comprising interests from the Malaysian arm of Australia-listed Leighton Holdings and Malaysia’s KNM.

- Petronas is aiming to start up Central Diyabekir production in 2017, one year after a similar wellhead platform for West Diyabekir. Construction will take place over 14 months, followed by offshore hook-up commissioning and host tie-in.

- Gas and condensate will be transported via in-field flowlines to the MCR-A platform before being exported via a new export pipeline to the onshore terminal in Kiyanly. This terminal will be expanded to double its capacity.

- We are not surprised by this development as the earlier Phase 1 Turkmenistan project has been fully completed. Coupled with fresh new orders from the Thai-Malaysia Joint Development Area and East Malaysia together with the novation of Sime Darby’s RM1.2bil Kebabangan topside platform contract, we expect the group’s order book of RM2.4bil currently to rise to over RM4bil by the end of the year. Hence, we maintain FY12F-FY14 net profits.

- We remain sanguine about MMHE’s re-rating prospects due to: (1) Re-accelerating order book momentum in the industry, (2)Strategic position in the country’s sole deepwater fabrication space with the capability of more complex engineering work, and (3) Higher margin benchmarks  for more complex structures.

- The stock still trades at an attractive FY12F PE of 17x, below 21-22x for SapuraCrest Petroleum and Kencana Petroleum.  

Source: AmeSecurities