BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Friday, 3 August, 2012

Results Review

MMHE
Below Still Below Expectation
MMHE 8,608.0 1,600.0 7.69 4.67 0.5 25.0% Y n.a. Altman Z-score YTD price chg YTD KLCI chg Beta Major Shareholders MISC Bhd Technip Sa Vanguard Group Inc n.a -4.95% 6.7% 1.2 66.5% 8.5% 1.2%

Trading Sell
Price: Target Price: RM5.38 (8.9% downside) RM4.90
MMHE 1HFY12s net profit of RM133.6m made up only 38% of our full year estimates. Thus we lowered our FY12 estimates by 15% while adjusting a slight increase for FY13 by 1%. MMHEs orderbook remains at the lowest level of RM2.8bn since FY09 but we expect the figure to improve with the expectation of additional contracts by end of the year, including the much awaited Malikai TLP and the much speculated Damar gas platform contracts. We are rolling forward our valuation to FY13 EPS of 24.5sen pegged on a PER of 20x hence deriving a target price of RM4.90. Trading Sell. Lower first half. 6MFY12 revenue was downed by 13% as a result of lower offshore segments contribution (RM1.46bn vs RM1.79bn) subsequent to the completion of Turkmenistan project in FY11. The marine segment which is boosted by FPSO Cendor and FSU Lekas increased by 84% to RM173m. Net margin for the period contracted by almost 26% to 8.2% despite a lower than expected tax rate of 9.3% from investment tax allowance due to lower profit recognition during the quarter as the RM1.15bn Kebabangan project has just only reach the 25% completion mark during the quarter. Near term orderbook replenishment. While YTD the Group managed to secure an additional RM1.5bn worth of new jobs (including the just revealed RM220m hook-up and commissioning job for Kinabalu topside), orderbook remains at the lowest level since FY09, due to MMHEs high orderbook burning rate. We expect there would be some meaningful orderbook replenishments in near term stemming from the Groups active bidding activities in 15 projects worth circa. RM5bn, both domestic (Malikai TLP, Damar gas platform, Petronas first FLNG turret) and overseas (Browse, Australia). Change in forecast. We lowered our FY12 expectation for MMHE by 15% while slightly increase our number for FY13 by 1% to account for i) slightly higher revenue recognition for new contracts in FY13 and ii) lower tax rate of 15% due to recognition of Investment Tax Allowance (ITA). Valuation & Recommendation. As we roll forward our valuation into FY13 EPS, we change our call on MMHE from Sell to Trading Sell with target price of RM4.90 based on EPS of 24.5sen and unchanged PER of 20x.

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 Financial Derivatives Share Performance (%) Absolute vs. KLCI

1mth 1.9% -0.1%

3mth 7.3% 2.0%

12mth -27.8% -33.2%

Financial Highlights FYE 31 Dec 3/2010 Turnover 6,147.0 EBIT 380.7 Pretax profit 377.2 Net Profit 279.2 EPS (sen) 17.5 EPS growth (%) 0.3% PER (x) 30.8 DPS (sen) 0.0 Div. Yield (%) 0.0% EBIT margin Pretax margin Effective tax rate ROE ROA Net Gearing (x) Growth ratios Turnover EBIT Pretax profit Core Net profit Share Price Chart
8.50 7.50 6.50 5.50 4.50 3.50 Aug-11

3/2011 4,435.4 399.6 424.0 450.7 28.2 61.4% 19.1 0.0 0.0%

12/2011 2,137.0 204.1 250.8 205.6 12.9 -54.4% 41.9 10.0 1.9%

2012E 3,277.6 335.0 338.0 297.4 18.6 44.7% 28.9 1.9 0.3%

2013E 4,368.0 461.4 461.4 392.2 24.5 31.9% 21.9 2.5 0.5%

6.2% 9.0% 9.6% 10.2% 10.6% 6.1% 9.6% 11.7% 10.3% 10.6% -24.7% 6.2% -17.9% -12.0% -15.0% 23.3% 19.6% 8.5% 11.0% 12.9% 5.8% 9.1% 4.6% 6.4% 6.9% net cash net cash net cash net cash net cash

52.9% 8.9% 8.1% 0.3%

-27.8% 5.0% 12.4% 61.4%

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

n.m n.m n.m n.m

33.3% 37.7% 36.5% 31.9%

Nov-11

Feb-12

May-12

Aug-12

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

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3 August 2012

Results Review: MMHE 2QFY12

1QFY11 957.8 67.0 96.4 (17.1) 0.3 79.3 79.0 4.9 NC 7.0% 10.1% 8.3% 17.8% 2QFY11 463.1 84.9 100.4 (20.1) (0.0) 80.2 80.2 5.0 NC 18.3% 21.7% 17.3% 20.1% 3QFY11 716.1 52.9 54.1 (7.7) 0.1 46.4 46.4 2.9 NC 7.4% 7.6% 6.5% 14.2% 1QFY12 665.3 85.7 86.8 (8.7) (0.2) 78.1 78.3 4.9 NC 12.9% 13.0% 11.7% 10.0% 2QFY12 965.7 53.6 60.5 (5.0) 0.2 55.5 55.3 3.5 NC 5.6% 6.3% 5.8% 8.2% QoQ 45.2% -37.4% -30.3% -42.7% n.m -28.9% -29.3% -29.3% n.a -56.9% -52.0% -51.0% -17.9% YoY 108.5% -36.8% -39.7% -75.3% n.m -30.8% -31.0% -31.0% n.a -69.7% -71.1% -66.8% -59.1% 6MFY12 1,631.0 139.4 147.3 (13.6) 0.0 133.6 133.6 8.3 NC 8.5% 9.0% 8.2% 9.3% 6MFY11 YTD Chng 1,881.1 -13.3% 157.5 -11.5% 210.5 -30.0% (2.7) 409.4% (0.1) -114.8% 207.8 -35.7% 207.9 -35.8% 13.0 -35.8% NC n.a 8.4% 2.1% 11.2% -19.3% 11.0% -25.8% 1.3% 628.2% Source: BIMB Securities

Quarterly figures
FY 31 Dec (RMm) Revenue EBIT Pretax profit Taxation Minority Interest Net Profit Core Net Profit EPS (sen) Net gearing (x) EBIT margin (%) PBT margin (%) Net profit margin (%) Effective tax rate (%)

Income Statement
FY 31 Dec (RMm) Revenue Pretax profit Core Net profit Core EPS (sen) EPS growth (%) DPS (sen) NTA/ share (RM) Net gearing (x) PER (x) P/NTA (x) Net div. yield (%) EV/ EBITDA (x) ROE (%)

3/2010 6,147.0 377.2 279.2 17.45 0.3% 0.00 0.76 net cash 30.8 7.1 0.0% 22.0 23.3%

3/2011 4,435.4 424.0 450.7 28.17 61.4% 0.00 1.44 net cash 19.1 3.7 0.0% 19.8 19.6%

12/2011E 2,137.0 250.8 205.6 12.85 -54.4% 10.00 1.52 net cash 41.9 3.6 1.9% 36.8 8.5%

2012E 3,277.6 338.0 297.4 18.59 44.7% 1.86 1.69 net cash 28.9 3.2 0.3% 22.9 11.0%

2013E 4,368.0 461.4 392.2 24.51 31.9% 2.45 1.91 net cash 21.9 2.8 0.5% 16.9 12.9%

Source: BIMB Securities

Balance Sheet
FY 31 Dec (RMm) Non Current Assets Current Assets Total Assets Current Liabilities Non Current Liabilities Shareholders' Fund Minority Interests Equity & Liabilities

3/2010 998.5 3,785.7 4,784.1 3,240.3 330.7 1,198.4 14.8 4,784.1

3/2011 1,142.1 3,785.2 4,927.3 2,624.6 1.0 2,298.4 3.3 4,927.3

12/2011 1,217.3 3,245.1 4,462.5 2,011.6 26.7 2,420.6 3.6 4,462.5

2012E 1,565.8 3,112.1 4,677.8 1,930.2 51.0 2,691.7 5.0 4,677.8

2013E 1,763.9 3,901.0 5,664.9 2,564.3 51.0 3,044.6 5.0 5,664.9

Source: BIMB Securities

www.bimbsec.com.my

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3 August 2012

Results Review: MMHE 2QFY12

Orderbook (RMM)

Order Intake (RMM)

Source: Company

www.bimbsec.com.my

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3 August 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Results Review: MMHE 2QFY12

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.

Published by

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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