KUALA LUMPUR (Nov 30): RHB Research has maintained its 'buy' recommendation and target price (TP) of 60 sen for Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) following the latest contract win from Petrofac International (UAE) LLC.
This achievement solidifies MHB's position in the heavy engineering sector and marks its entry into the burgeoning wind farm market, noted the research house in a note on Thursday (Nov 30).
MHB's wholly owned subsidiary has secured a subcontract worth around RM1.2 billion from Petrofac for the engineering, procurement and construction (EPC) of an offshore substation platform in the Netherlands.
The subcontract is expected to last 54 months, beginning with fabrication in 2025, and could also lead to additional fabrication work for two more offshore substations of similar sizes.
Despite current projects promising earnings visibility up to the financial year 2025 (FY2025), RHB has projected a conservative earnings before interest and taxes (Ebit) margin of 1%, equal to about RM12 million in earnings, due to MHB’s loss-making track record.
However, RHB has adjusted down its FY2024-2025 earnings forecasts for MHB by 10%-5% and is prepared for potential downside risks, such as execution delays, increased material costs, and labour shortages.
Separately, TA Securities has maintained its 'hold' stance on MHB with a TP of 53 sen, as it is cautious on the job win.
"However, as this is MHB’s first OSS (offshore substation) project, the group may face challenges in the form of execution risks and cost management to avoid cost overrun," it said in a note.
The research firm noted that this is MHB’s second project win announced for the year, and assuming an operating margin of 1%, the project is estimated to generate RM10.8 million net earnings throughout the EPC period.
Following the job win, TA Securities estimated that MHB’s order book currently stands at RM6.9 billion, equivalent to 4.2 times FY2022 revenue.
At the time of writing, MHB shares were one sen or 2% lower at 48 sen, valuing the company at RM768 million.