BIMB SECURITIES RESEARCH

MARKET INSIGHT

Monday, 2 July, 2012

Company Update

PP16795/03/2013(031743)

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Company Update- MMHE Sell◄► Show Me More Price: RM5.30

Target Price: RM4.37 Stock Data

Bloomberg Ticker MMHE

MK

Equity

Altman Z-score n.a Market Cap 8,480.0 YTD price chg -6.36% Issued shares 1,600.0 YTD KLCI chg 4.5% 52-week range (H) 8.67 Beta 1.2 52-week range (L) 4.67 Major Shareholders 3-mth avg daily volume 0.6 MISC Bhd 66.5% Free Float 25.0% Technip Sa 8.5% Shariah Compliant Y Vanguard Group Inc 1.2% Share Performance (%) 1mth 3mth 12mth Absolute 7.9% -1.6% -35.1% vs. KLCI 4.1% -3.2% -37.5% Financial Highlights

FYE 31 Dec

(RMm)

3/2010 3/2011 12/2011 2012E 2013E Turnover 6,147.0 4,435.4 2,137.0 3,865.0 4,312.3 EBIT 380.7 399.6 204.1 434.1 493.1 Pretax profit 377.2 424.0 250.8 437.1 493.1 Core Net Profit 279.2 450.7 205.6 349.7 389.6 EBIT margin 6.2% 9.0% 9.6% 11.2% 11.4% Pretax margin 6.1% 9.6% 11.7% 11.3% 11.4% Effective tax rate -24.7% 6.2% -17.9% -20.0% -21.0% ROE 23.3% 19.6% 8.5% 12.8% 12.6% ROA 5.8% 9.1% 4.6% 6.9% 6.9% Net Gearing (x) net cash net cash net cash net cash net cash Core EPS (sen) 17.5 28.2 12.9 21.9 24.3 Core EPS growth

(%)

0.3% 61.4% -54.4% 70.1% 11.4% PER (x) 30.4 18.8 41.2 24.3 21.8 DPS (sen) 0.0 0.0 10.0 2.2 2.4 Div. Yield (%) 0.0% 0.0% 1.9% 0.4% 0.5% NTA/share (RM) 0.76 1.44 1.52 1.71 1.93 Growth ratios Turnover 52.9% -27.8% -51.8% 80.9% 11.6% EBIT 8.9% 5.0% -48.9% 112.7% 13.6% Pretax profit 8.1% 12.4% -40.8% 74.3% 12.8% Core Net profit 0.3% 61.4% -54.4% 70.1% 11.4% Share Price Chart

Chiong Tong Chai

chiongtc@bimbsec.com.my

03-26918887 ext 175

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 platform’s 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.

2 July 2012 Company Update: MMHE

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BIMB Securities uses the following rating system:

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 analyst’s coverage universe, is expected to outperform the relevant primary

market index over the next 12 months

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primary market index over the next 12 months

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market index over the next 12 months

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securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB

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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,

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http://www.bimbsec.com.my Head of Research

The investments discussed or recommended in this report may 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 with 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 opin-ions and estimates included in this report constitute our judgement as of this date and are subject to change without notice..

The investments discussed or recommended in this report may 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 with 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 opin-ions and estimates included in this report constitute our judgement as of this date and are subject to change without notice..

The investments discussed or recommended in this report may 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 with 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 opin-ions and estimates included in this report constitute our judgement as of this date and are subject to change without notice..