Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) has secured a subcontract for an offshore substation (OSS) worth RM1.2bn. The project’s duration is approximately 54 months and is estimated to generate RM10.8mn net earnings throughout the contract period. However, as this is MHB’s first OSS project, the group may face challenges in the form of execution risks and cost management. No change to our earnings forecasts as the job win is within our FY23 order book replenishment assumption. Maintain Hold with an unchanged target price of RM0.53/share pegged to 0.6x CY24 P/B ratio.

Secures RM1.2bn Landmark Offshore Substation Subcontract

MHB has secured an engineering, procurement and construction (EPC) subcontract for OSS high voltage direct current (HVDC) platform from Petrofac International (UAE) LLC worth RM1.2bn. The OSS HDVC platform will comprise a topside and a jacket for the Ijmuiden ver Alpha Project. The project’s duration is approximately 54 months, with fabrication to begin in 2025 and be completed by 2028. In addition, MHB and Petrofac will collaborate towards the possibility of fabrication works for two additional units of OSS of similar size.

Prior to the subcontract, MHB and Petrofac had entered into an early works agreement back in July 2023, where, MHB has begun the preparatory works and deployment of key personnel for design and constructability support in line with Petrofac’s targeted delivery of the OSS for the Ijmuiden ver Alpha Project, TenneT’s 2GW energy transition Programme in the Netherlands.

Our Take

This is MHB’s second project win announced for the year, bringing the YTD contract win to about RM2.6bn. Assuming an operating margin of 1%, the project is estimated to generate RM10.8mn net earnings throughout the EPC period.

Following the job win, we estimate that MHB’s order book currently stands at RM6.9bn, equivalent to 4.2x FY22 revenue. We are cautiously optimistic on the job win as it provides the group with valuable experience in OSS fabrication. However, as this is MHB’s first OSS project, the group may face challenges in the form of execution risks and cost management to avoid cost overrun.

Impact

No change to our earnings forecasts as the job win is within our FY23 order book replenishment assumption of RM3.0bn.

Valuation

Maintain Hold with an unchanged target price of RM0.53/share pegged to 0.6x CY24 P/B ratio.

Source: TA Research - 30 Nov 2023