PETALING JAYA: Malaysia Marine and Heavy Engineering Holdings Bhd ’s (MMHE) subcontract win worth RM1.5bil to build an offshore substation at a wind farm in the Netherlands is a shot in the arm for the group, analysts say.
Not only would it have the potential to boost its earnings and the size of its order book, but the contract will pave the way for MMHE to achieve its environmental, social and governance (ESG) goals, they said.
RHB Research views the subcontract win as a positive, given the growing wind-farm sector would provide earnings opportunities for MMHE. However, it said successful project execution is crucial to fully capitalise on the potential.
On Tuesday, the company said in a filing with Bursa Malaysia it had secured a RM1.5bil subcontract to build an offshore substation for a wind farm in the Netherlands.
Fabrication work for the substation platform will begin in 2025 and is expected to last 36 months, with completion in 2028. This is MMHE’s second offshore wind project.
“With the new award, the group’s offshore substation wind-farm contracts now total RM2.7bil and we estimate this will increase its order book by 28% to around RM6.9bil, compared with RM5.4bil in the first quarter of 2024 (1Q24).
“Ongoing projects include the Jerun, Rosmari-Marjoram, Kasawari carbon capture and storage jobs in Sarawak.
MMHE’s tender book, which we estimate to be about RM6bil to RM7bil following this contract win, mainly comprises wind farm and fixed facilities jobs.
“We see potential upside coming from the securing of an additional work on offshore substations of similar size. Due to MMHE’s loss-making track record, we project a conservative earnings before interest and tax margin of 1%, which translates to about RM15mil in earnings,” the research house said.
RHB Research, which is maintaining its “buy” call on the stock, said key downside risks for the company include delays in execution, higher material costs and labour shortages.
Meanwhile MIDF Research said it believes the subcontract is a crucial step to achieving MMHE’s ESG goals, while also adding value to the group’s engineering, procurement, construction and commissioning (EPCC) work on offshore platforms to include clean -energy infrastructure as well.
Considering that the project is still in its preliminary stages, the research house is making no changes to its forecasts for MMHE,and maintained its “buy” call, with a target price of RM0.65.