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BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Monday, 2 July, 2012

Company Update

Company Update- MMHE


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Stock Data Bloomberg Ticker Market Cap Issued shares 52-week range (H) 52-week range (L) 3-mth avg daily volume Free Float Shariah Compliant MMHE 8,480.0 MK 1,600.0 Equity 8.67 4.67 0.6 25.0% Y Altman Z-score YTD price chg YTD KLCI chg Beta Major Shareholders MISC Bhd Technip Sa Vanguard Group Inc n.a -6.36% 4.5% 1.2 66.5% 8.5% 1.2%

Sell
Price: Target Price: RM5.30 RM4.37
According to Upstream, MMHE is in line to secure another wellhead platform fabrication contract worth RM200m. This came after its recent RM278m F14/F29 fabrication contract. Though still pending confirmation, our earnings forecast remains as we have factored in such contracts into our earnings model. While we remain sanguine on the prospect of contract flows for the rest of the year, the risk to our forecast remains on the value and the timing of new contracts. For on-going bids, we note that competition from international players will be strong as local players may not enjoy absolute preferential treatment in getting jobs. Still a Sell with target price unchanged at RM4.37. The contract. The potential contract worth RM200m involves the fabrication of a wellhead platform destined for the Damar gas field located around the Lawit field off Peninsular vicinity. The platforms weight is below 4,000 tonnes and is to be delivered between 12-28 months. Bidding updates. According to Upstream, Hyundai Heavy Industries have emerged as the frontrunner for the Cakerawala platform fabrication contract based on its most competitive bid price of about USD400m, compared to the rest of the field i.e MMHE, Kencana, SOME, Larson and Toubro and Nippon Steel. This contract is likely to be awarded in July by Carigali Hess. By revisiting the field development history in the Malaysia-Thailand Joint Development Area (JDA) where Cakerawala field is located, some of the platform fabrication contracts were in fact awarded to foreign players, thus reminding the fact that technical and commercial competitiveness are the most important considerations by operators in awarding contracts, particularly in the JDA area where it involves financial interests of two sovereigns. As for the Malikai TLP contract, our understanding is that it would likely to be awarded in August-September with competition remains keen as bidders are allowed to nominate foreign fabricators for the fabrication portion as compared to before where the winner is required to team up with MMHE for the fabrication job, MMHE has been roped in by Technip for the job. Change in forecast. No change. Valuation & Recommendation. We retain our Sell call on MMHE with a target price of RM4.37 based on 20x PER over FY12 EPS of 21.9sen.

Share Performance (%) Absolute vs. KLCI Financial Highlights FYE 31 Dec 3/2010 Turnover 6,147.0 (RMm) EBIT 380.7 Pretax profit 377.2 Core Net Profit 279.2 EBIT margin Pretax margin Effective tax rate ROE ROA Net Gearing (x) Core EPS (sen) Core EPS growth PER (%) (x) DPS (sen) Div. Yield (%) NTA/share (RM) Growth ratios Turnover EBIT Pretax profit Core Net profit Share Price Chart

1mth 7.9% 4.1%

3mth -1.6% -3.2%

12mth -35.1% -37.5%

3/2011 4,435.4 399.6 424.0 450.7

12/2011 2,137.0 204.1 250.8 205.6

2012E 3,865.0 434.1 437.1 349.7

2013E 4,312.3 493.1 493.1 389.6 11.4% 11.4% -21.0% 12.6% 6.9% net cash 24.3 11.4% 21.8 2.4 0.5% 1.93

6.2% 9.0% 9.6% 11.2% 6.1% 9.6% 11.7% 11.3% -24.7% 6.2% -17.9% -20.0% 23.3% 19.6% 8.5% 12.8% 5.8% 9.1% 4.6% 6.9% net cash net cash net cash net cash 17.5 28.2 12.9 21.9 0.3% 61.4% -54.4% 70.1% 30.4 18.8 41.2 24.3 0.0 0.0 10.0 2.2 0.0% 0.0% 1.9% 0.4% 0.76 1.44 1.52 1.71

52.9% 8.9% 8.1% 0.3%

-27.8% 5.0% 12.4% 61.4%

-51.8% -48.9% -40.8% -54.4%

80.9% 112.7% 74.3% 70.1%

11.6% 13.6% 12.8% 11.4%

Chiong Tong Chai chiongtc@bimbsec.com.my 03-26918887 ext 175

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2 July 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Company Update: MMHE

STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

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BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

www.bimbsec.com.my

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