Affin Hwang upgrades MMHE on Kasawari contract win

KUALA LUMPUR: Affin Hwang Capital research has upgraded Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) to Hold from Sell and raised its target price to 83 sen on a long-term re-rating catalyst.

In a note published today, the research house said MMHE and its partner Technip had secured the Kasawari EPCIC contract, which could be worth RM5-6bil based on its estimate.

“Assume 50% to be executed by MMHE, this would increase its current outstanding order book by 3x from RM864m (as of March 2019),” said Affin Hwang.

The contract involves the engineering, procurement, construction, installation and commissioning (EPCIC) of a 47,000-tonne central processing platform (CPP) and 8,600-tonne wellhead platform (WHP) with a flare structure and two bridges.

Affin Hwang said Kasawari’s contribution in FY20 may not be as material as the bulk of the profit will likely be back-loaded towards the tail-end of the contract based on the group’s more conservative accounting policy for its EPCIC contracts.

“Looking at the recent awarded Bokor CPP, the group reported an average loss of RM13m over 5 of the past 7 quarters for its heavy engineering.

“Nevertheless, we raised FY20-21E earnings by 51-56% following this sizeable contract win, but cut FY19 to a loss as we foresee a continuing loss for its marine business unit,” it said.

Source: TheStar