Maybank IB Research

PP16832/04/2011 (029339)

Initiating Coverage 4 January 2011

Malaysia Marine and

Heavy Engineering At the cusp of a super-cycle boom
Holdings Initiating coverage with a Buy and RM6.50 target price. Malaysia
Marine and Heavy Engineering Holdings Berhad (MHB) is Malaysia’s
most prominent offshore fabrication operator directly benefiting from
Buy PETRONAS’ development programmes. MHB offers strong earnings
Share price: RM5.90 visibility, sustainable order book and tender pipeline. Its market
leadership and PETRONAS’ pedigree parentage put it on a higher
Target price: RM6.50
perch in securing the major jobs. We expect MHB to be a strong
beneficiary of sizeable E&C and marine conversion jobs soon.
Wong Chew Hann, CA In an entrenched position to ride on PETRONAS’ E&Ps. Prospects
wchewh@maybank-ib.com are bright for MHB to capitalise on PETRONAS’ rising capital
(603) 2297 8688 expenditure programme. Domestic order book visibility is strong and
sustainable with opportunities in the deepwater, shallow, brown and
marginal fields. MHB is also set to profit from PETRONAS’ increased
E&P activities in Turkmenistan and Iraq. Outstanding order book stands
at RM6b while the tender book is about RM9b. Altogether, there are
RM25b worth of PETRONAS jobs for grab over the next 18 months.
Technip opens doors to higher value-added jobs. The strategic tie-
up will further enhance MHB’s reputation and capability in the highly
technical engineering & construction, and marine conversion jobs
relating to FLNG, FSU and FSRU. These are beyond MHB’s existing
capabilities. The tie-up will also give MHB an immediate foothold in the
Description: A leading heavy engineering and marine
service provider with 3 core businesses: (i) engineering & subsea market. France’s Technip is among MHB’s largest shareholder
construction, (ii) marine conversion and (iii) marine repair with an 8% stake, after MISC with a 65% interest.
Information: Strong earnings growth potential. We project a 26% 2-year net profit
Ticker: MMHE MK CAGR fueled by clear order book visibility and tender pipeline. Malikai’s
Shares Issued (m): 1,600.0
Market Cap (RM m): 9,440.0 deepwater, Tapis’ EOR, Turkmenistan Block 1 Phase 2, Iraq venture,
3-mth Avg Daily Volume (m): 6.14 and floater orders are some of the RM25b contracts that MHB could
KLCI: 1,533.42 secure. Margins are set to rise as MHB executes more hybrid and
Major Shareholders: % fixed-priced projects and reduces its cost-plus billings. MHB targets
MISC BHD 64.6 RM1b net profit by 2015, which implies a 29% CAGR.
TECHNIP SA 8.0
Market leadership warrants market leading valuations. We value
MHB at RM6.50, based on 22x CY12 EPS, 25% premium over its SEA
peers. The domestic O&G sector is just at the beginning of a cyclical
Price Performance:
upturn, supported by PETRONAS’ huge capex programme. The sector
52-week High/Low RM6.04 / RM3.80
has hit 26x price-earnings multiple in the previous up-cycle, and our
1-mth 3-mth 6-mth 1-yr YTD 22x target reflects a capex-fueled, order book-driven environment.
MHB – Summary Earnings Table
20.4 - - - -
FYE Mar (RM m) 2009A 2010A 2011F 2012F 2013F
Turnover 4,021.1 6,147.0 4,276.6 4,088.2 4,360.7
Price Chart (RM5.90) EBITDA 373.4 407.6 408.0 456.4 502.8
Recurring Net Profit 278.3 279.2 382.1 439.9 482.8
6.5 Recurring EPS (sen) 17.4 17.5 23.9 27.5 30.2
6.0 MMHE MK Equity
EPS growth (%) 44.6 0.3 36.9 15.1 9.8
5.5 DPS (sen) 0.0 0.0 3.2 3.7 4.0
5.0
PER (x) 33.9 33.8 24.7 21.5 19.6
4.5
EV/EBITDA (x) 25.3 22.0 20.0 18.5 17.2
4.0
Div Yield (%) 0.0 0.0 0.5 0.6 0.7
3.5 P/BV (x) 10.3 7.9 3.4 2.9 2.6
3.0
Net Gearing (%) 2.3 cash cash cash cash
Oct-10

ROE (%) 35.7 26.4 19.0 14.6 14.0

ROA (%) 16.2 10.2 7.6 8.1 8.2
Book Value (RM) 0.57 0.75 1.76 2.01 2.29
Source: Maybank-IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Table of contents

Page
Key investment merits 3
Introduction 4

Snapshot of MHB’s yards & track record

• MHB’s yards … 7
• Vis-à-vis regional yards 8
• Quality and quantity 9
• Strong operational track record 10

Domestic prospects & opportunities

• PETRONAS’ driven growth 11
• Deepwater offers the most potential 12
• Shallow water and EOR prospects also promising 15
• Marginal fields offers marine conversion jobs 17

Technip opens doors to higher value-added jobs 18

Turkmenistan offers visibility beyond Malaysian waters 21

Iraq set to be a main feature in coming years 22

Financials
• Order book prospects 23
• Financial projections 25

Valuation
• Equity value based on EV/EBITDA multiples 29
• Equity value based on PER comparisons 30
• Equity value based on EV/order book 31

Risks 32

Financial statements 33

Appendices
1. Group structure 34
2. Who’s who in MHB 35
3. Corporate and business milestones 36
4. Global expenditure programmes 37
5. Global yards (ex-Asia) 38

Glossary 39

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Key Investment Merits

MHB’s yards

Source: Compiled by Maybank-IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Introduction

A market leader in offshore fabrication. Malaysia Marine and Heavy

Engineering Holdings Berhad (MHB) is a heavy engineering and
marine service provider organised under 3 core businesses:
(i) engineering & construction (E&C),
(ii) marine conversion, and
(iii) marine repair services.
MHB, one of Asia’s leading offshore fabricators, currently operates two
fabrication yards – the Malaysian yard is located at Pasir Gudang,
Johor, whilst the overseas yard is based in Kiyanly, Turkmenistan.

Well endowed assets. The Pasir Gudang yard infrastructure includes

a 1.8km seafront, and it is the single largest fabrication yard in Malaysia
(by annual tonnage capacity). It is also equipped with comprehensive
and integrated facilities.

Eminent track record to boot. MHB’s dry-dock facilities are also

among the largest in Asia. MHB is the only operator in Malaysia that
offers:
(i) construction of deepwater structures (an emerging market),
(ii) marine conversion work, and
(iii) marine repair services,
all undertaken at a single location.
PETRONAS: Strong shareholder with history of adding value. MHB
is owned by PETRONAS, Malaysia’s National Oil Company (NOC) via
PETRONAS’ ownership of MISC Bhd. This is a unique distinction in the
industry, because most of the regional yards are independently-run. We
believe MHB offers the best exposure to PETRONAS’ upstream and
midstream ventures compared to the other three PETRONAS-related
listed companies i.e. MISC, Petronas Gas, and Petronas Dagangan.
MHB – PETRONAS-linked entity

Sources: Company, Maybank-IB

Engineering & Construction leads earnings base. MHB’s E&C

division has consistently been its largest earnings contributor over the
past three years, accounting for 59-91% of Group’s revenue.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

MHB: Revenue breakdown

FY08: RM1,742m FY09: RM4,021m FY10: RM6,147m
Marine Repair Marine Repair and Marine Repair
and Conversion Conversion and Conversion
9%
24%
41%
59%
76%
91%

Engineering and Engineering and Engineering and

Construction Construction Construction

Source: Company Source: Company Source: Company

Snapshot of MHB’s 3 core businesses

E&C – Malaysia
 One of only seven PETRONAS licensed contractors with exclusive
rights to fabricate offshore structures for Malaysia’s Petroleum
Sharing Contractors (PSCs).
 Provides a full range of oil & gas (O&G) construction and
engineering services; from detailed engineering design and
procurement to construction, installation, hook-up and
commissioning (EPCIC).
 Has the ‘single largest’ fabrication yard (321,000m²) in Malaysia by
annual tonnage capacity (69,700t) and load-out facilities (40,000t).
 Equipped with comprehensive and integrated facilities (151ha
complex) with a 1.8km seafront in Pasir Gudang, Johor.
 The only yard in Malaysia with the track record and proven
capabilities to construct complex deepwater structures.
 Fabricated largest SPAR operating outside the Gulf of Mexico
(GoM) and deepest SPAR installed in Asia.
 Market share:
 Topside fabrication in Malaysia (on tonnage capacity)
Ranked #1: 27%
 Global semi-submersible construction: 6% (2003-10)
 Global SPAR construction: 9% (2003-10)
Sources: Company, Maybank IB

E&C – Turkmenistan
 Operates and manages on behalf of Petronas Carigali
(Turkmenistan) Sdn Bhd.
 The only topside fabrication yard in Kiyanly, Turkmenistan. Has an
open area of 100,000m² on a 44ha complex.
 Able to fabricate up to 25,000MT a year (on current capacity).
 One of six yards in the Caspian region with the experience to
manufacture offshore O&G topsides.
 This business enterprise is a 60:40 joint venture (JV) with Technip
Geoproduction (M) Sdn Bhd via MMHE-TPGM Sdn Bhd. Up to now,
this entity has been operating in Turkmenistan through MMHE only.
Sources: Company, Maybank IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Marine conversion
 Offers one-stop centre for converting vessels such as:
 Very Large Crude Carriers (VLCC),
 petroleum tankers (i.e. Aframax), and
 offshore oil rigs into floating structures:
- Floating, Production, Storage and Offload vessels
(FPSO),
- Floating, Storage, Offload vessels (FSO),
- Mobile Offshore Production Unit vessels (MOPU), and
- Mobile Offshore Development Unit vessels (MODU).
 The only yard in Malaysia that has completed FSO and FPSO
conversions.
 Its comprehensive range of conversion services range from
engineering design to fabrication, installation and commissioning of
these structures.
 Has one of the largest dry-dock facilities in South East Asia (SEA) to
support vessels or structures of up to 450,000 dwt.
 Owns one of the largest ship lift systems, capable of lifting vessels
and structures of up to 50,000MT.
 Market share for conversion jobs in:
 Malaysia (FPSO/ FSO): 100%
 Global (FPSO): 4% (2003-12)
 Global FSO: 12% (2003-12)
Sources: Company, Maybank IB

Marine repair
 Offers the largest dry-dock facilities in Malaysia.
 Only yard in Malaysia and among three operators in SEA to carry
out repair or refurbishment of LNG carriers.
 Able to handle three refurbishment projects concurrently (i.e. 1
VLCC and 2 Aframax vessels).
 A 70:30 JV with Samsung Heavy Industries via MMHE-SHI LNG
Sdn Bhd to repair and dry-dock LNG carriers since 2006.
 Market share for LNG repair in:
 Malaysia: 100%
 SEA: 30%
Sources: Company, Maybank IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Snapshot of MHB’s yards & track record

 MHB’s yards …

Pasir Gudang yard facilities Kiyanly yard facilities

• 2 dry-docks (one up to 450,000 dwt

measuring 385m x 80m x 14m and • 436,000 sqm and a total tonnage
Dry-dock Facility Area
the other up to 140,000 dwt capacity of 25,000MT p.a.
measuring 270m x 46m x 12.5m)

• 5 fabrication areas: 321,400 sqm Covered

Open • 3 skid tracks and 2 bulkheads, one Fabrication
• 86m x 25 m x 11m, equipped with
Fabrication up to 40,000MT and the other up to Yard - Main
20MT overhead crane
Yard Area 12,000MT Fabrication
• 1 skid track up to 6,000MT Shop

• 35 workshops covering an area of

99,000 sqm (including a fully equip- Covered
Fabrication • 86m x 15m x 11m, equipped with
Workshops ped, covered cutting and assembly
workshop, service workshop and Yard - Pipe 10MT overhead crane
production workshops) Shop

Covered
Fabrication • 30m x 10m x 8m, equipped with a
• 1 shiplift (188.4 x 33.8m x 8m draft
Shiplift Yard - 10MT overhead crane
with lift capacity of 50,000 dwt)
Maintenance
Works

Covered
Fabrication
Landberth • 2 landberths (each 345m in length) • 20m x 10m x 5m
Yard - Paint
Shop

Open Blasting
Quay • 7 quays (lengths of up to 368m) and Painting • 50m x 75m
Area

• 1 LNG Carrier Repair Facility

• 3 Global Test Control Room
Other Facilities • 1 Cryogenic Workshop (557.8 sqm)
• 1 Invar Welding Training Centre
(84.28 sqm)

Source: Company

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Vis-à-vis regional yards

Snapshot of Malaysia’s yards and capabilities

Penang
BHIC ● ●
Johor
MHB ● ● ● ●
Sime Darby Engineering ●
Lion Rig Builder (Planned)

Perak
Kencana Petroleum ●●
UMW Fabritech (Planned)

Malacca
OilFab ●

Legend
Sarawak ● Marine conversion
● Marine repair
Brooke Dockyard ●
● Deepwater project
● Engineering and construction

Source: Compiled by Maybank-IB

Snapshot of Asia’s and the Caspian region’s yards (ex-Malaysia)

The Caspian region South Korea

•AMEC-Tekfen- Azfen •Hyundai Heavy Ind.
•J. Ray McDermott •DSME
•Keppel Corporation (2) •Samsung Heavy Ind.
•CNRG •Shinhan Machinery Co.
•MHB

China
•Shanghai Waigaoqiao Shipyard Japan
•Dalian Shipbuilding Offshore •Mitsubishi Heavy Ind.
•Yantai CIMC Raffles Shipyards Ltd •Mitsui Engr & Shipbuilding
•Keppel Hantong Shipyard •Japan Drilling Co.
•COOEC

Thailand
India •Cuel
•ABG Shipyard •Lamprell
•Cochin Shipyard
•Larsen & Toubro The Philippines
•Hindustan Shipyard •Atlantic, Gulf &Pacific
•Bharati Shipyard

Indonesia Singapore
•Saipem •Sembcorp
•Dubai Drydocks •Keppel
•Beng Kuan Marine •Dubai Drydocks

Source: Compiled by Maybank-IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Quality and quantity

Single largest fabrication yard in Malaysia, by tonnage & load-out facilities

Maximum load-out facilities (MT)
50,000
45,000
40,000
35,000
30,000 MHB Pasir
25,000 Gudang
20,000
15,000 Sime Darby A
Sime Darby
10,000
Pasir Gudang
5,000 Kencana
Sime Sime
- Darby C Darby B
- Brooke 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
Annual tonnage capacity (MT)

Sources: Company, Data on the other companies are from the respective companies

Top regional yard in SEA, by length of dry dock

Length (m)
385
385
384
384
383
382
381
380 380 380
380
379
378
377
MHB Pasir Gudang Sembawang Jurong Shipyard 3 Hyundai 2 Keppel Admiral
Premier

Sources: Company, Data on the other companies are from the respective companies

Top regional yard in SEA, by quoted dwt dock capacity

Quoted maximum (000 dwt)
500 500
450
450 400 400 400
400
350
300
250
200
150
100
50
0
Jurong Shipyard 3 MHB Pasir Gudang Hyundai 2 Keppel Admiral Sembawang
Premier

Sources: Company, Data on the other companies are from the respective companies

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Strong operational track record

E&C track record since inception, no. of jobs done

141
4
10
15
15

35

62

Substructures
Modules, Platfor

either Topside

Deepwater FPS
Turrets
(including Living

Others

Total
(FPSO, SPAR,
ms & Topsides

Jacket with

or Modules
Jacket &
Quarters)

FSO)
Source: Company

Marine conversions track record in FY08-10, no. of jobs done

FSO, FPSO & MOPU Newbuilds & Others

1 8

6
4

8
3 19

2008 2009 2010 FY08 - FY10

Source: Company

Marine repairs track record in FY08-10, no. of jobs done

Others Rigs & MOPU Container & Bulk Carrier Tankers LNG & LPG
8 15

6 14 19
31
34
2 15
9
16
28 81
5
18
4
4 22 55
22
57 73 74 204
2008 2009 2010 FY08 - 10

Source: Company

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Domestic prospects & opportunities

 PETRONAS-driven growth

Riding on growing opportunities. Prospects are bright for all of

MHB’s businesses as commodity prices and economic (including O&G)
activities recover. MHB should enjoy better order book visibility at its
three core businesses (i.e. E&C, marine conversion and marine repair
services) as PETRONAS raises its capex programme and places
greater focus on its domestic and Turkmenistan operations.

PETRONAS raises capex by 8% YoY to RM40b in FY11. In its official

announcement, PETRONAS has revealed a higher capex plan for
FY11 (YE Mar). The RM40b budget is 8% higher than FY10’s, and the
bulk of it will be spent locally. Operationally, contracts are flowing again
and job enquiries rising. With replenishment risk abating, these
indicators suggest that sector fundamentals are at the cusp of recovery.
PETRONAS’ capital expenditure (RM’b)

Sources: PETRONAS, Maybank-IB

Major oilfields development. As PETRONAS searches for higher

recoverability of hydrocarbons from existing fields and develops new
complex frontiers, we foresee opportunities for MHB in four key areas:

(i) deepwater,

(ii) shallow,

(iii) marginal, and

(iv) brownfields

From a top-down business perspective, we expect MHB to enjoy

sustained growth as demand for its services should strengthen from
increased exploration and production (E&P) activities. MHB stands to
gain from stronger order flows, which optimises its yard space along
the way. The details of our arguments on MHB’s prospects are outlined
in the ensuing pages.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Deepwater offers the most potential

Industry prospects:

- Malaysia is well positioned as a regional deepwater centre.

Malaysia’s deepwater activities, actively promoted by PETRONAS,
are expected to play a prominent role in the industry’s E&P
development as it is one of the most effective ways to increase
reserves and production.
Malaysia: Oil reserves (5.25b barrels) Malaysia: Gas reserves (87.95t cu ft)

Shelfal oil,
4%
Deepwater,
26%

Shelfal oil,
74% Deepwater,
96%

Sources: PETRONAS, Maybank IB Sources: PETRONAS, Maybank-IB

- Deepwater fields have larger reservoirs, higher flow rates.

Deepwater finds are most likely to produce 500m barrels of oil per
field. It is anticipated that these deepwater blocks could contribute
about 150,000-250,000 bpd of Malaysia’s future oil production.
Malaysia’s deepwater reserves potential
Metres below sea level
0

200 Kamunsu
401 m bbl
400 Gumusut-Kakap
Malikai
650 m bbl
600 108 m bbl

800 Jangas
81 m bbl
1,000

1,200
Pisangan
1,400 56 m bbl

1,600
Ubah Crest
1,800 215 m bbl
2,000

Sources: PETRONAS, Maybank-IB

- Deepwater to contribute 1/3 of Malaysia’s production.

PETRONAS expects the deepwater sector to contribute 30-40% of
Malaysia’s O&G production over the next 10 years, in line with the
growing trend in the region. A total of 17 deepwater PSCs have
been awarded to-date, covering 119,000sq km. At present, only
one is at the production stage.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Malaysia’s oil production: Shallow and deepwater fields

Deepwater Shallow water

2010A

2011F

2012F

2013F

0%
20%
40%
60%
80%
100%

Source: PETRONAS

- Deepwater blueprint offers visible roadmap. We gather that 8

deepwater projects will be implemented. The Kikeh field is
Malaysia’s first deepwater production field, which was successfully
commissioned on 17 Aug 2007 with an oil production rate of
120,000 bpd. Gumusut-Kakap field is up next, by 2012 and will be
followed by several others.
Malaysia’s implementation of deepwater projects
2007 Future development field projects

Kikeh

Gumusut/Kakap

Malikai

Indicative First Oil Kebabangan

Exploration Strategy

Exploration Jangas

Appraisal & Reservoir Evaluation

Field Development Studies Ubah Crest

Preliminary Engineering

Project Implementation Pisangan

Kamunsu

Sources: PETRONAS, Maybank-IB

Opportunities for MHB:

- Entrenched position to leverage on the deepwater boom. We

believe Malaysia’s increasing deepwater developments require
local engineering, fabrication and manufacturing support. MHB has
the expertise, and we expect it to continue benefiting from
Malaysia’s deepwater projects, as it rides on opportunities in
offshore facilities fabrication, and hook-up and commissioning jobs.

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 Malaysia Marine and Heavy Engineering Holdings Berhad

With 6 other domestic deepwater fields earmarked for future

development, MHB is in for an interesting time. We take a view that
every deepwater field requires a floating structure, at the very least
for its production solutions.

- Upcoming Malikai requires a TLP and a FPSO. The Malikai field

is expected to be Malaysia’s next deepwater project. We expect
PETRONAS to pursue a tension-leg platform (TLP) structure,
supported by a floating production storage and offloading (FPSO)
unit for the Malikai deepwater project. Construction of a TLP alone
would cost about RM2b, a sizeable addition to MHB’s order book.

MHB has a high probability of clinching these E&C (TLP) and

marine conversion (FPSO) jobs, based on its track record. It has
garnered a 100% success rate in taking up and delivering
Malaysia’s deepwater construction structures to-date. Kikeh’s
SPAR was fabricated and installed in 2007. Gumusut-Kakap’s
semi-submersible floating production system (FPS) will be
commissioned in 2012.

- Regional deepwater opportunities beckon. With Malaysia

pioneering deepwater development in Asia, there are also
opportunities for MHB to tap onto the deepwater development
projects in the region, namely Thailand, Indonesia and Vietnam
over the next few years.
PETRONAS’ deepwater blocks worldwide

OBO (Greenland)
2 blocks
● OBO (Vietnam)
North Sea 1 block

COB (Malaysia)
OBO (Mauritania)
7 blocks
1 block
CBO (Mauritania)
OBO (Egypt)
2 blocks
2 blocks
●
CBO (Cuba)
Gulf of Mexico JOB (Malaysia)
4 blocks
● ●
COB (Myanmar)
3 blocks
● ●●● 1 cluster
West Africa ●
● ●

Offshore Brazil OBO (Cameroon) OBO (Indonesia)

● 3 blocks
●
2 blocks
OBO (Malaysia)
11 blocks
 
  Deepwater hotspot
    Emerging hotspot
●  Carigali operated block (COB) COB OBO (Mozambique)
●  Operated by others (OBO) (Mozambique) 1 block
3 blocks
●  Joint operated block (JOB)

Source: PETRONAS

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Shallow water and EOR prospects also promising

Industry prospects:

- Tapping into opportunities in shallow water and brownfields.

Despite the emphasis on deepwater prospects, PETRONAS will
also be equally focused on developing shallow water and
brownfields prospects as there are still ample hydrocarbon
resources unexploited there.

- 65-70 new platform structures for shallow waters in 5 years. 22

new open shallow water blocks, covering over 240,000 sq km are
open and available for data review. Based on PETRONAS’
announcement, there is a need to construct 65-70 (small and large)
fixed structures and platforms for its domestic operations over the
next 10 years.

- Brownfield projects are also key focus area, with abundance of

opportunities, considering that PETRONAS intends to rejuvenate
brownfields to optimise their productivity levels. These fields will be
rejuvenated through enhanced oil recovery (EOR) programmes. It
is estimated that EOR implementation in Malaysia will add 166,000
bpd (+28%) to annual oil production by 2020. EOR potential in
Malaysia is massive and is estimated to be at approximately 2b
stock tank barrels.

- EMEPMI prepares major tenders for Tapis field. ExxonMobil

Exploration and Production Inc (EMEPMI) and PETRONAS
Carigali Sdn Bhd (PCSB) are carrying out a tender exercise for a
major new Centralised Processing Platform (CPP), upgrading of
existing wellhead platforms and pipeline replacement work for the
Tapis field. This is a centerpiece of a multibillion dollar rejuvenation
programme. The construction contract is expected to be awarded
by early 2011 whilst offshore installation may take place in 2013.

Opportunities for MHB:

- Good chance of landing EMEPMI’s CPP project. Fabrication

work on the CPP, which includes a 20,000 tonne topside and a
6,000 tonne eight-legged jacket is expected to take 18-24 months.
With the contract to be awarded by early 2011, we expect MHB to
have the available yard space for fabrication works, as existing
topside construction jobs for Tangga Barat and Kinabalu should be
completed by 2011-12.

- EOR programmes at 6 brownfield projects. Notwithstanding the

Tapis field CPP structure potential, about USD2.1b has been
committed by EMEPMI and PETRONAS for Enhance Oil Recovery
(EOR) brownfield projects at Seligi, Guntong, Semangkok, Irong
Barat, Tabu and Palas. Again, we expect MHB’s chances of
securing some works to be strong, on the back of its track record.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

New exploration play- types resulted in new discoveries

Legend: Sediment Thickness (m ) >1,000≤ 4,000 ≥ 4,000

Proven Successful Play-types On-going Studies

A Fractured Basement in Malay Basin (Anding Utara) K Sarawak Basin Deep Play

B Turbiditites Play in Central Luconia (Kumang) L Half- graben play in Tatau Province

C Deep-seated Pinnacle Reef Play in Central Luconia M Turbidites/ Hydrodynamic Play in DW Sabah
(Kanowit, PC 4, Anjung)
D Malay Basin Centre HPHT Gas Play (Guling Deep) N Turbidites Play in Sandakan Basin

E Malay Basin Centre Oil Play (Sepat Deep) O Syndrift Play in UDW Sabah

F Malay Basin Syndrift Play (Kecubung) P Turbidites Play in Sabah Shelf

G Sarawak Basin Syndrift Play (KT) Q Fractured Basement in Malay/Penyu Basin

H DW Sarawak Fault Block Play (Talang) R HPHT Play in Baram Delta

I DW Sabah Turbidities Play (Kikeh, Gumusut) S Low Co2 Gas Play in Rajang Delta

J DW Sabah Foldbelt Play (Rotan, Biris)

Source: PETRONAS

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Marginal fields offer marine conversion jobs

Industry’s prospects:

- Marginal field development should also see rapid progress, as

PETRONAS aims to optimise production, development and
production activities. Small, marginal fields will be developed
through innovative solutions to achieve a faster pace of oil & gas
discoveries. Several marginal field projects have been identified for
fast-track for development.

- Unlocking marginal fields potential could lift Malaysia’s annual

oil production by 55,000 bpd (+10%) by 2020 considering that a
significant proportion of Malaysia’s remaining sources lay in fields
of sub-20m barrels of recoverable oil. Up to 90 hotspots in 25
marginal fields have been identified in Malaysia waters with 10
fields ready for development.

- Floating structure opportunities on the rise. We gather that

‘design competition’ tenders for three marginal fields, namely
Sepat, Cendor Phase 2 and Berantai are being carried out. We
think that Sepat requires a wellhead platform, a FSO and MOPU
whilst Cendor Phase 2 requires a stand-alone FPSO vessel for its
development programme. These marginal field projects, which
require offshore floating structures, are estimated to cost about
USD1b in total.

Opportunities for MHB:

- MHB is a leading contender for these super structure jobs.

MHB’s Pasir Gudang yard is the only yard in Malaysia and one of a
select few in the region that can undertake large marine conversion
jobs, backed by its dry-dock facilities. As PETRONAS continues to
develop local expertise, we expect these conversion jobs to be
undertaken in Malaysia.

We rate highly MHB’s chances of clinching the new floater projects.

Firstly, MHB has 2 sizeable dry-docks and an integrated yard to
facilitate the conversion works and construction of offshore topside
modules. Secondly, MHB has the track record, having consistently
completed 19 conversion jobs over the past 3 years. Notable
deliveries in the past include:

(i) FPSO Kikeh (converted from a VLCC vessel) in 2007,

(ii) FPSO Ruby II (converted from Aframax tanker) in Mar 2010,

(iii) MOPU Dana 1 & Dana 2 (converted from old rigs) in 2009-10.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Technip opens doors to higher value-added jobs

A strategic shareholder. French-based Technip SA has an 8.0%

equity stake in MHB, acquired from MISC at a 2% premium to MHB’s
IPO institutional price of RM3.80/shr. This strategic shareholder raises
MHB’s capabilities beyond the normal offerings of FSO, FPSO and
MOPU conversions. Further, MHB’s chances of securing more
technically challenging conversion jobs will improve considerably.
Technip offers MHB:

 elevation in technical capabilities and innovative technological

development, and

 a firm foothold onto technically demanding floating structure

projects such as floating LNG vessels (FLNG) and floating
storage regasification units (FSRU) with a track record to boot.

FSRU, FLNG projects worth USD3b on the cards. Beyond the FSO,
FPSO and MOPU projects, PETRONAS is pushing ahead with its plans
to develop two FSUs and a FLNG for its domestic operations. We
suspect these are high-value, high-impact projects, probably to be out
for bid in 2011-15. These projects are vital to address potential gas
supply shortage in Peninsular Malaysia, which may occur as early as
2014. In our estimates, these projects would cost up to USD3b in total.

Technip’s entry is thus timely. Firstly, Technip’s FLNG solution is

commercially viable. It has the engineering expertise and total solution
(i.e. cryogenic flexible pipes, cryogenic pipe-in-pipe, processing
system, FPSO, subsea services and product provider) for the FLNG
job. Secondly, Technip has a proven FLNG track record to show as:

 it has been contracted by Shell to construct a 3.5m tpa FLNG

in 2009,

 it was awarded a Front End Engineering and Design (FEED)

contract to develop a FLNG of 2.7m tpa for Petrobras-BG-
Respol-Galp Energia.

MHB has the yard space, MISC has the vessels. MHB’s parent
company, MISC, should be able to offer LNG carriers for these
conversion projects. Two vessels, MISC’s Tenaga Satu and Tenaga
Empat, currently laid-up, could be deployed for conversion works.

Subsea market, another key growth area. Technip could also play a
leading role in capturing subsea opportunities in Malaysia together with
MHB as the nation develops its deepwater prospects. Technip’s
technological innovation (i.e. flexible risers, intelligent flexible pipe, and
excellent flow assurance performance), first class assets and
architectural framework are proven for deepwater subsea challenges
with over 3,000m water depth. The Nakika, Perdido and Chinook &
Cascade deepwater fields are some of Technip’s key achievements in
applying its technological solutions at deepwater fields.

Malaysia’s subsea market to grow by 87% over the next 3 years.

According to market researcher, Instok, Malaysia’s subsea market is
projected to grow by a 3-year sales CAGR of 87% over 2010-12. The
subsea market is expected to increase by 2.4-fold to USD404m in 2010
as investment in the Gumusut-Kakap (Shell) development picks up and
hit USD1.1b by 2012.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Technip’s FLNG track record

Shell FLNG Petrobras Pre-Salt FLNG FEED

 Client: Shell Gas & Power  Client: Petrobras-BG-Repsol-Galp

Developments BV Energia
 Technical data:  Design competition:
- 450m x 70m - FEED contract signed in 2009
- 3.5m tpa LNG capacity - FID 2011 to be followed by EPC
- Associated LPG production tender

- Liquid production potential: >5m tpa - 14m sm3/d associated gas imported
from oil FPSO’s
- Estimated topside weight: > 50,000t
- 2.7m tpa LNG
Source: Technip

Technip: A snapshot
Technip Société Anonyme (Technip), headquartered in France and listed
on the Euronext Stock Exchange, is the world’s fifth largest player in project
management, engineering and construction for the oil & gas industry.
Technip designs and builds high-technology industrial installations. It
possesses integrated capacity with recognised expertise in 3 fields:
 Subsea structures. Technip is a key operator on this market. Its
activities include the design, manufacture and installation of rigid and
flexible subsea pipelines and umbilicals.
 Offshore platforms. Technip has key expertise in developing and
constructing offshore fixed shallow (i.e. TPG 500 and Unideck),
deepwater (i.e. SPAR and semi-submersibles) platforms and floaters (i.e.
FSO, FPSO, FLNG and FSRU).
 Onshore mega complexes. Technip is a worldwide leader in refining
and petrochemical units. It holds several propriety technologies and
leads in the design and construction of LNG and gas treatment plants,
hydrogen and syngas units.
Technip to emerge as a substantial shareholder. Technip will emerge as a
strategic shareholder of MHB, acquiring between 8% - 9.9% stake in MHB.
Sources: Technip, Maybank-IB

Technip’s product for deepwater fields

Flexibles – 3,000m Flexibles – monitoring Rigid – heated pipe-in-pipe

 Extend flexible riser  A new generation of  Excellent flow assurance

water depth and
pressure capability to
> 3,000m through
innovation solutions.  Joint development of
 Initial results from
ultra deep offshore
test of 7”, 9” and 11”
flexible pipe for sweet
and sour services
were successful
intelligent measurement performance
enabled flexible pipes
 Extension of current
technology to include
advanced flexible pipe possibility for active
integrity and heating of flowline
surveillance with system.
Schlumberger.

Source: Technip

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Technip’s technological solutions at various deepwater fields

Nakika (2004) Perdido (2008) Chinook & Cascade (2009)

 Reeled pipe-in steel  SPAR operating with  A new application of

catenary risers deepest water depth FSHR further to the
of 2,350m PDET project with
 Water depth: 2,000m Petrobras
 Subsea pipelines with
2,950m depth  5 free standing hybrid
risers

 Water depth: 2,500-

2,640m

Source: Technip

Malaysia’s subsea market by definition

(USD' m) SURF Subsea Equipment Subsea Services

1,200
1,093
1,000

800

600 559
404
400
276
254 243
200 157 166
111

0
2004 2005 2006 2007 2008 2009 2010F 2011F 2012F

Source: Instok

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Turkmenistan offers visibility beyond Malaysian waters

The Caspian region’s robust potential. The Caspian offshore is one

of the most important sources of O&G production growth. The Caspian
region holds 20% of the world’s oil and 45% of gas reserves. Russia’s
O&G developments (notably the Vladimir Filanovsky development) and
Kazakhstan’s developments (Kashagan field) are expected to become
big buyers of topsides in the near future. Turkmenistan, bordering
Kazakhstan in the north and Iran in the south also offers potential.

Partnering Technip in Turkmenistan. MHB ventured beyond the

Malaysian borders in 2007 when it began operating and managing an
open fabrication yard in Kiyanly, Turkmenistan on behalf of Petronas
Carigali (Turkmenistan) Sdn Bhd to support the latter’s development
programme there. The Kiyanly yard is the only yard in Turkmenistan. It
is also one of only six yards in the Caspian region with the capability to
fabricate offshore topsides. MHB is partnering Technip Geoproduction
(M) Sdn Bhd under a 60:40 JV (MMHE-TPGM Sdn Bhd) for this
venture.

Kiyanly yard turning “fertile”. The Turkmenistan venture has been a

success, as it continues to provide MHB with order book visibility. Its
fabrication contracts are worth RM5.6b to-date for the Block 1 Phase 1
project. Operating risk is negated by cost-plus clauses, which shields
MHB from cost escalation, and geopolitical sensitivities. In light of the
growing importance of the Caspian Sea’s operations, the Kiyanly yard
is turning into an important division of MHB’s business activities. MHB
is embarking on a development plan to expand its yard facilities there.

Mid and long term prospects. In the midterm, we foresee that the
Block 1 Phase 2 contract, which should be rolled-out by FY12, will
replace the Block 1 Phase 1 order book, ending soon. We expect the
Phase 2 contract to be similar to Phase 1, in terms of equipment to be
fabricated but slightly smaller in value. As the yard undergoes further
development, MHB’s long term aim is to work with other PSC
contractors in Turkmenistan and EPC contractors in the Caspian region
for offshore fabrication contracts and maintenance support services.
Key Caspian sea development projects
Project Country Reserves Start-up Est. Peak Est. Peak Operator Production
(mmboe) date Production Date facilities
('000 bpd)

Kashagan Kazakhstan 10,285 2013 1,500 2023 NCOC Artificial Island

ACG Azerbaijan 4,367 1997 1,030 2011 BP Fixed platform
Shah Deniz (gas) Azerbaijan 2,930 2006 510 2018 BP Fixed platform
Severnyi Russia 2,608 2010 370 2024 LuKoil Fixed platform
Livanov Turkmenistan 1,664 2006 250 2021 PETRONAS FPSO/fixed platform
SOCAR Assets* Azerbaijan 1,190 1949 410 1981 SOCAR Fixed platform
Khvalynskoye (gas) Kazakhstan-Russia 898 2016 90 2018 LuKoil Fixed platform
Cheleken Turkmenistan 833 1972 125 2015 Dragon oil Fixed platform
Kalamkas More Kazakhstan 720 2018 160 2021 NCOC Fixed platform
Pearls Kazakhstan 463 2018 100 2023 CMOC Fixed platform
Sources: Wood Mackenzie, Maybank IB; * State Oil Company of Azerbaijan

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Iraq set to be a main feature in coming years

Iraq to provide long-term alternative visibility. We also expect MHB

to capitalise on PETRONAS’ recent venture in Iraq, in terms of E&C
opportunities. PETRONAS has successfully secured 4 oil blocks after
its bid in 2009. On a combined basis, these fields could produce 1.2-
2.7m bpd of oil, equivalent to 4.5x of Malaysia’s domestic production.

We foresee maiden E&C order from as early as 2011. We anticipate

the Iraq contract values to grow in size gradually as PETRONAS
develops the fields there. Judging from the size of these fields, we do
not rule out MHB setting up a fabrication yard in Iraq in the future
(similar to its venture in Turkmenistan) to capitalise on the Middle East
region’s long term oil & gas opportunities.
PETRONAS’ fields in Iraq
Field Consortium PETRONAS Output Reserves Duration Inv
(% stake) stake target (b barrels) (year) (USD’b)
(%) ('000 bpd)
Majnoon Shell: PETRONAS: State Partner South Oil Co 30.0 700-1,800 12.6 10 NA

Halfaya CNPC: PETRONAS: Total: State Partner South Oil Co 18.8 300-535 4.0 13 NA

Badra Gazprom: KOGAS: PETRONAS: TPAO: State Partner South Oil Co 15.0 80-170 0.1 7 2

Gharaf PETRONAS: Japan Petroleum: State Partner South Oil Co 45.0 150-230 0.9 13 7-8

Sources: Various, Maybank IB

Snapshots on several of Iraq’s fields related to PETRONAS

Sources: Petroleum Economist, Wood Mackenzie, BP Statistical Review

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Financials

 Order book prospects

Set to enjoy sustained growth. PETRONAS’ active domestic

programmes send a strong signal that the pace of project roll outs is
picking up. With the step up in awards valued at RM25b, we see
exciting prospects for MHB as it capitalises on the strong order flow.
These projects should optimise its yard space. We also see MHB’s
fortune growing with Technip’s presence as it operates higher up in the
value chain.

Strong replacement cycle outlook. Against this backdrop, we expect

MHB’s outstanding order book, now at RM6b (24 months visibility) and
tenders of RM9b (based on our estimates) to see a high replenishment
rate over the next few years. Growth is expected to come from all its 3
businesses: E&C, marine conversion and marine repair services.
Outstanding order book
Segments Billing Type (RM’m)

Engineering and Construction

EPC/EPCIC 3,509.1
 Gumusut-Kakap Hybrid
 Turkmenistan Block 1 Phase 1 Cost plus
Topsides 1,310.5
 Kinabalu Hybrid
 Tangga Barat Hybrid
Turrets 8.7
 BP Angola External Turret Fixed price
Sub-total 4,909.4

Marine Repair
 Tankers 2.5
 Rigs & Others 5.4
 LNG & LPG 25.3
Sub-total 33.2

Marine Conversion
 Dana 256 4.0

Others 1,000.0
Total 5,946.6
Source: Company
Snapshot of business opportunities
Opportunities Types of project Estd. Value
Upcoming deepwater fields (7) Floating production structures RM1-2b
 Malikai  Fabrication of TLP, conversion of FPSO
22 new open shallow water blocks Fabrication of 65-70 fixed platforms NA
Brownfield rejuvenation programmes Fabrication of offshore structures RM1-2b
 Tapis  CPP, upgrade of existing wellhead platforms, pipeline replacement works
EOR programmes RM6-8b
 Seligi, Guntong, Semangkok, Irong  Fabrication of offshore structures
Barat, Tabu & Palas fields
Marginal fields Marine conversion, repair RM2-3b
 Sepat, Cendor Phase 2, Berantai  Conversion and construction of FSO, FPSO and MOPU

Remote gas fields, gas regasification project Offshore floating structures RM9-10b
 Conversion and construction of FSU, FSRU & FLNG vessels
Subsea market Flexible risers, pipes, flow assurance performance RM1.3b
Rig/ tender barges Tender-assisted rigs RM0.5b
Turkmenistan project E&C of topsides and modules RM5b
Iraq project E&C of topsides and modules NA
Sources: Compiled by Maybank IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Business opportunities for regasification projects

Sources: Compiled by Maybank IB

Leading the race for some sizeable E&C jobs. We rate MHB high in
benefiting from several high profile E&C contracts such as Malikai’s
deepwater offshore project, EMEPMI’s Tapis CPP, Turkmenistan Block
1 Phase 2, Iraq and PETRONAS’ regasification project orders, which
are all expected to roll out soon. We expect MHB’s E&C revenue to
remain high at RM3-4b p.a. in FY11-13.

In the running for several marine conversion jobs. Notwithstanding

the high-profile FSU, FSRU and FLNG projects, we believe the
marginal field projects for Sepat, Cendor Phase 2 and Berantai which
require:

(i) FSO, FPSO and MOPU vessels, and

(ii) two tender assisted-rigs

should keep MHB’s yard occupied, if MHB clinches these projects.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Our financial projections

Good earnings visibility 2 years out. MHB delivered RM278m net

profit in FY09 and sustained at RM279m in FY10. We expect earnings
trajectory to climb on the backdrop of rising order book and margins.
We forecast MHB delivering net profits of RM382m in FY11 (+37%
YoY) and RM440m in FY12 (+15% YoY), which imply commendable 2-
year CAGR of 26%. Our main assumptions are RM3-4b order book
replenishment p.a., and an uptick in blended EBITDA margin to 9.5% in
FY11 and 11.2% in FY12 (FY09: 9.3%, FY10: 6.6%).

Growth to be driven by stronger margins… MHB’s gross margins

are set to expand as it delivers a higher degree of hybrid (i.e. a
combination of cost-plus and fixed-price/ lump-sum contracts) and fixed
priced projects, and reduces cost-plus value jobs. The Gumusut-Kakap
deepwater, Kinabalu and Tangga Barat jobs, which started out on a
cost-plus basis are moving into the hybrid stage. Turkmenistan’s
project is on a cost-plus billing method.

Billing methods: Margins versus risk (based on industry’s norm)

Source: Maybank-IB

Billing methods: Margins versus risk

Sources: Company, Maybank IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Gross margins versus Turkmenistan’s cost plus billings revenue

Turkmenistan (LHS) Pasir Gudang (LHS) Gross profit margin (RHS)
( RM 'm ) (%)
7000 21

6000 18

5000 15

4000 12

3000 9

2000 6

1000 3

0 0
FY 08 FY 09 FY 10

Source: Maybank IB

And, tax benefits. We expect MHB to pay marginal taxes from FY11
owing to the recent Investment Tax Allowance (ITA) granted by MIDA
under the Yard Optimisation Programme. We do not expect MHB to
pay taxes on its Malaysia-income. In our view, the ITA allows MHB to
derive tax credit on its yard optimisation (YO) capex of RM2.7b (ex-
leased land). This incentive could be applied from 2006’s year of
assessment for a period of 10 years.

Turkmenistan’s project to be equity accounted from 4Q FY11. The

earnings, consolidated in the past, will be equity accounted from 4Q
FY11 once the project is novated to MMHE-TPGM upon the completion
and approval of the JV’s Permanent Establishment (PE) in
Turkmenistan. MHB owns 60% of MMHE-TPGM but it will be classified
as a jointly controlled entity after JV obtains its PE status.

Significant capex going forward. MHB is in its growth phase and will
be incurring significant capex over the next few years – Pasir Gudang
yard optimisation programme (RM2.2b), Kiyanly yard (RM107m) and
other peripherals (RM137m). Also, there is a potential of a new yard in
Iraq. As a result, we do not expect significant dividend payout in the
near term. Our forecasts incorporate a 10% payout of net profit.

Clean balance sheet. MHB was in a net cash position of RM1.1b as at

30 Sep 2010 based on a gross debt of just RM1.4m and a huge cash
balance of RM1.1b. Together with strong operating cashflows of
RM352m (FY11) and RM443m (FY12) based on our estimates, this is
sufficient to fund its expected capex programme of RM1.5b (total) in
FY11 and FY12. We expect MHB’s balance sheet to remain clean with
net cash of RM975m at end-2012 and RM797m at end-2013.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Capex profile
Yard Optimisation Kiyanly yard Other
RM 'm
800
22.3
121.6 9.1
600 83.9 23.5

400
550.1 681.3
200 626.7

2011F
2012F
2013F

Source: Company

Pasir Gudang yard optimization programme: Productivity and capacity goals

Ability to simultaneously  Construction of deepwater structures (including hull and top-side) of up to 40,000MT on new skid-tracks and
complete multiple projects bulkheads
post Pasir Gudang yard
optimisation exercise  Concurrently carry out repair works for 2 LNG carriers and 4 VLCCs

 Concurrently carry out conversion works on 3 FPSOs, FSOs or rigs

Project Selected details and specificationsExisting area Planned area

(sq m) (sq m)
 Fabrication, assembly and  New fabrication area no.6 and 321,400 391,400
Incremental improvements
erection area new 25,000MT skid-track
upon completion of the
Pasir Gudang yard  Workshops and  New autoblast and primer, 100,400 160,043
optimisation programme warehouse blasting and painting, MMHE-ATB
and structural and piping
workshops. New testing
laboratory, warehouse and air-
conditioned storage

 Fabrication area capacity  Maximization through yard 69,700MT 80,500MT

optimisation programme
Source: Company

Pasir Gudang yard optimization programme: Overall development plan

Projected cost
Project Selected details and specification
(RM m)
 Workshops
Rationalisation of workshops to improve efficiency and Automation and construction of specialised enclosed 316.1
productivity for improved turnaround of production work areas to improve efficiency and productivity

 Capacity expansion - engineering and construction

Installation of new capacity for engineering and construction Construction of 25,000 tonnes bulkheads and skid- 448.6
activities track, concreting of fabricating areas

 Capacity expansion – repair and conversion

Installation of new facilities for marine conversion and repair Enlargement of existing dry-dock and installation of 632.2
activities new facilities

 Tonnage capacity expansion

New and upgraded equipment for higher tonnage capacity Acquisition and installation of floating crane, block 329.0
transportation dolly and mechanical and engineering
utilities
 General
General facilities and other items Acquisition & installation of other general facilities 447.6
Total 2,173.5

Source: Company

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Valuation

We value MHB at RM6.50, based on 22x CY12 EPS. Our valuations

may appear aggressive, but they are fair in a capex-fueled, order book-
driven environment. The O&G sector has hit 26x price-earnings
multiple in the previous up-cycle and we reckon the sector is just at the
beginning of an upturn. Our 22x forward target multiple is premised on
a 25% premium to its South-East Asian (SEA) peers’ average of 17x for
MHB’s yard high profitability, efficiency and strong growth prospects
backed by its existing order book and growth potential.
Sector historical PER valuations
(x) Kencana Sembcorp Marine Keppel Corp
30
25
20
15
10
5
0
Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10
Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11
Source: Bloomberg

Fabricators are the first in line to benefit (order book-wise) from

capex recovery vis-à-vis other service providers. Timeline-wise, we
foresee a rush of contract flows in the O&G sector from 1Q11 (as early
as January). MHB’s market leadership and PETRONAS’ pedigree
parentage put it on a higher perch in securing the major jobs. In
retrospect, MHB is just one of few operators who have the privileged
support of a national oil company (NOC), a major positive in our view.

Valuation methodology. In deriving the target price for MHB, we have

looked at three methods of valuation: EV/EBITDA, PER and EV/order
book, and conclude that the PER method is the most appropriate.
Contract/order book driven businesses should realistically be assessed
based on a multiple of some measure of earnings. DCF valuation is
less practical, because earnings tend to be cyclical and order book
visibility does not extend beyond 30 months. We believe MHB is
fundamentally valued between RM6.9b (RM4.34/shr) to RM10.4b
(RM6.50/shr) based on peer earnings and EBITDA multiples.

Peers comparison. We use market multiples of three South East Asia-

based peers, Kencana Petroleum, Keppel Corp and Sembcorp Marine,
because only these three companies:
 operate fabrication yards that construct similar O&G structures,
and
 share similar political and operating risks.

North Asia operators (i.e. Hyundai Heavy Ind., Samsung Heavy Ind.)
are structurally different, business-wise. These yards have construction
capacity geared towards shipbuilding, which depresses their valuations.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Valuation based on EV/EBITDA multiples

Peer comparisons of EV/EBITDA and growth (calendarised)

2-year EBITDA CAGR EV/EBITDA
(%) (x)
SEA-based 2011 2012
- Kencana Petroleum 20.8 12.6 11.0
- Sembcorp Marine (9.1) 10.0 9.6
- Keppel Corp (2.5) 12.0 11.7
Simple average 11.6 10.8

North-Asia based
- Hyundai Heavy Ind (2.8) 8.2 8.3
- Samsung Heavy Ind (2.1) 9.4 9.4
- Mitsubishi Heavy Ind 5.7 9.1 8.3
Source: Bloomberg

Premium valuations to peers. The EV/EBITDA multiples of the three

SEA-based peers in the table above averaged 10.8x for 2012 earnings.
Given that these peer multiples (ex-Malaysia) are pricing in declining
EBITDA over 2011 and 2012 while we project a 2-year EBITDA CAGR
of 7% for MHB, a premium over its peer multiples is justified.

Effectively the ‘PETRONAS parent’ premium. Malaysia-based O&G

related companies’ orders are largely domestically-driven, supported by
PETRONAS’ commitment to grow domestic production by 3% p.a. over
the next 5 years, maintain oil output at 630,000 bpd whilst aiming to
keep its status as a net oil exporting country. Its neighboring peers do
not have the luxury of a National Oil Company support. Their order
books are more dependent on unrelated customers’ capex programme.

Premium for yard profitability and efficiency. Malaysia-based

companies also tend to demonstrate a more optimal use of yard space
than Singaporean operators. MHB and Kencana’s average EBITDA per
thousand tonne capacity multiple of 6.6-7.5x by far outstrips their
Singapore peers of 0.4-0.5x.

Peer comparisons of EBITDA per unit capacity (calendarised)

2-year EBITDA CAGR EBITDA/ ‘000 tonne of
capacity
(%) (x)
SEA-based 2011 2012
- Kencana Petroleum 20.8 6.6 7.5
- Sembcorp Marine (9.1) 0.4 0.4
- Keppel Corp (2.5) 0.5 0.5
Simple average 2.5 2.8

MHB * 7.2 6.6 7.2

* Refers to FY12-FY13 for MHB
Source: Bloomberg

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

RM7b equity value. We believe a 25% premium over SEA-based

peers’ EV/EBITDA is justified given MHB’s fabrication yard which
derives higher profitability (EBITDA/tonne of capacity). This delivers
RM7b in equity value, translating into RM4.34 per MHB share, which
serves as the floor for its valuation.

Target price derived from EV/EBITDA computations

FY12 FY13
MHB’s EBITDA 456.4 502.8

Peer EV/EBITDA multiple (x) * 11.6 10.8

Apply premium to peers: 0% 11.6 10.8
10% 12.7 11.9
25% 14.4 13.5
   
EV of MHB 0% 5,273.8 5,418.5
10% 5,801.1 5,410.4
25% 6,592.2 6,148.2

Net cash position 973.8 795.1

Projected equity value range 0% 6,247.5 6,213.6

(based on EV/BITDA) 10% 6,774.9 6,205.5
25% 7,566.0 6,943.3

Target price per MHB share range 0% 3.91 3.88

10% 4.24 3.88
25% 4.73 4.34
* We have used CY11-CY12 as peer comparables for MHB’s FY12-FY13
Source: Maybank-IB estimates

 Valuation based on PER comparisons

RM10.4b equity value. Based on straight-forward application of peer

PERs to its net profit, and a 25% premium to the peer PER average of
17x, we estimate MHB’s equity value to be RM10.4bn. This translates
into RM6.50 per MHB share. We tactically believe a 25% premium (22x
PER) to be sustainable and not aggressive, given the fabrication yard’s
strong growth prospects (we estimate 26% 2-year net profit CAGR),
greater earnings visibility, and huge order book enhancing potential.

Equity value derived from PER computations

FY12 FY13
MHB net profit 439.9 482.8

Peer PER multiple (x) 17.8 17.2

Apply premium to peers: 0% 17.8 17.2
10% 19.5 18.9
25% 22.2 21.5
   
Projected equity value range 0% 7,812.6 8,304.5
(based on PER) 10% 8,593.9 9,134.9
25% 9,765.8 10,380.6

Target price per MHB share range 0% 4.88 5.19

10% 5.37 5.71
25% 6.10 6.50
Source: Maybank-IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

 Valuation based on EV/order book

In the table below, we compare a company’s EV versus its order book.

MHB’s peers have a market EV range of 1.9 – 3.6x. Applying the
lowest EV/order book multiple in the range (1.9x) yields a computed EV
of RM11.4b for MHB and an equity value of RM12.4b. Applying the
highest peer average of 4.1x yields an equity value of RM25.6b. At our
established RM7.6b – RM10.2b equity value (from previous sections),
the implied EV/order book for MHB is only 1.2x to 1.6x.

MHB’s order book may be valued lower by the market for now versus
regional peers for several reasons:

 We think the majority of MHB’s projects, to be recognised over

the next 12-24 months, offer comparatively low margins owing
to a higher procurement component undertaken for the early
phases of these E&C jobs.

 Singapore yards construct mainly offshore rigs and floating

structures while MHB constructs fixed platform structures; the
latter tends to yield lower margins. Such structures dominate
the order book at the Turkmenistan yard and its cost-plus type
contracts tend to depress margins too. Going forward, the
nature of the structures being bid for and the presence of
Technip may result in some margin restoration.

Peer Comparison of EV/order book

Company Currency Share O/S order EV/ order
price book book
($) ($’m) (x)
- Kencana Petroleum RM 2.52 1,100 3.6
- Sembcorp Marine SGD 5.37 4,700 1.9
- Keppel Corp SGD 11.50 4,100 4.1
Simple average 3.2
Sources: Bloomberg, Maybank-IB

MHB’s implied EV/order book

Company O/S order EV/ order Implied Implied
book book MHB’s EV equity value
(RM’b) (x) (RM’m) (RM’m)
MHB 6 1.9 11,426.4 12,401.2
4.1 24,613.2 25,588.0
Sources: Bloomberg, Maybank-IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Risks

Contract award delays. MHB’s order book is dependent on offshore

oil & gas field developments by PETRONAS and its contractors. These
are subject to planning, regulatory and political hurdles which can delay
field development and awards to fabricate offshore structures.

Oil price levels affect long term investment plans. PETRONAS and
other oil majors’ investment plans are dependent on long-term oil price
assumptions, which can be affected by low and/or volatile oil price
levels. We have seen oil field exploration/developments shelved when
oil price fell below USD50/bbl (average) in 2008, and there is no
certainty this will not recur. Our economics team projects an average
USD90/bbl crude oil price in 2011 (2010: USD80/bbl).

Competition from other PETRONAS-licensed fabrication yards. Six

other fabrication yards are licensed to fabricate structures domestically;
of these, 3 are active competitors for the PETRONAS jobs. These
competitors may turn more aggressive in pricing their bids depending
on the industry circumstances or for specific jobs.

Margin squeeze from cost inflation. Labour, MHB’s largest cost item,
generally suffers from long-term upward costs pressure while steel is a
volatile cost item. The latter is usually passed on to customers in cost-
plus clauses in contracts.

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Financial statements

INCOME STATEMENT (RM m) BALANCE SHEET (RM m)

FY Mar 2010A 2011F 2012F 2013F FY Mar 2010A 2011F 2012F 2013F

Revenue 6,147.0 4,276.6 4,088.2 4,360.7 Net Fixed Assets 928.9 1,654.3 2,347.9 2,946.7
Cost of goods sold (5,550.6) (3,727.0) (3,503.6) (3,733.2) Invts in Assocs & JVs 0.2 13.5 42.6 71.8
Gross profit 596.4 549.5 584.6 627.5 Other LT Assets 69.4 69.4 69.4 69.4
Other ope. (exp)/ Inc. (215.7) (171.7) (161.7) (161.7) Cash & ST Invts 765.9 1,602.1 1,280.3 1,102.6
EBIT 380.7 377.8 422.9 465.8 Other Current Assets 3,019.8 2,115.1 2,023.9 2,155.7
Net int (exp)/ Inc (3.5) (3.4) (3.4) (3.4) Total Assets 4,784.1 5,454.3 5,764.2 6,346.3
Associates & JV (0.0) 13.3 29.2 29.2
Exceptional gain/ (loss) (0.0) 0.0 0.0 0.0 ST Debt 2.9 2.9 2.9 2.9
Pretax profit 377.2 387.8 448.7 491.6 Other Current Liab 3,237.4 2,282.5 2,186.4 2,325.5
Tax (93.1) (2.7) (5.8) (5.8) LT Debt 302.6 302.6 302.6 302.6
Minority interest (4.9) (3.0) (3.0) (3.0) Other LT Liab 28.0 28.0 28.0 28.0
Net profit 279.2 382.1 439.9 482.8 Shareholders Equity 1,198.4 2,820.4 3,222.5 3,661.5
Net profit ex EI 279.2 382.1 439.9 482.8 Minority Interest 14.8 17.8 20.8 23.8
Total Cap. & Liab 4,784.1 5,454.3 5,764.2 6,346.3
EBITDA 407.6 408.0 456.4 502.8
Sales Gth (%) 52.9 (30.4) (4.4) 6.7 Share Capital (m shares) 1,600.0 1,600.0 1,600.0 1,600.0
EBITDA Gth (%) 9.2 0.1 11.9 10.2 Net Debt/(Cash) (460.4) (1,296.5) (974.8) (797.1)
EBIT Gth (%) 8.9 (0.7) 11.9 10.1 Working Capital 545.3 1,431.7 1,114.0 928.0
Effective Tax Rate (%) 24.7 0.7 1.3 1.2 Gross Gearing % 25.5 10.8 9.5 8.3

CASH FLOW (RM m) RATES & RATIOS

FY Mar 2010A 2011F 2012F 2013F FY Mar 2010A 2011F 2012F 2013F

Net Profit 279.2 382.1 439.9 482.8 Gross Margin (%) 9.7 12.9 14.3 14.4
Dep. & amort 26.9 30.2 34.5 39.0 EBITDA Margin (%) 6.6 9.5 11.2 11.5
Chg. In wkg cap 404.9 (50.2) (5.1) 7.3 EBIT Margin (%) 6.2 8.8 10.3 10.7
Other ope. CF 532.3 (10.3) (26.2) (26.2) Net Profit Margin (%) 4.5 8.9 10.8 11.1
Operating CF 1,243.3 351.8 443.2 502.9 ROE (%) 26.4 19.0 14.6 14.0
Net capex (260.0) (755.6) (727.1) (635.8) ROA (%) 10.2 7.6 8.1 8.2
Chg in LT inv 0.0 0.0 0.0 0.0 ROCE (%) 26.6 18.6 13.9 13.5
Chg in oth assets (260.0) (755.6) (727.1) (635.8) Interest Cover (x) 110.3 112.4 125.8 138.6
Investment CF (260.0) (755.6) (727.1) (635.8) Debtors Turn (days) 133.9 212.4 178.3 168.8
Net chg in debt 49.8 (0.0) (0.0) (0.0) Creditors Turn (days) 143.4 251.0 214.6 204.0
Chg in other LT liab. (501.8) 1,239.9 (37.8) (43.8) Inventory Turn (days) 2.8 3.2 2.7 2.6
Oth. Financing CF 0.0 0.0 0.0 0.0 Current Ratio (x) 1.2 1.6 1.5 1.4
Financing cash flow (452.0) 1,239.9 (37.8) (43.8) Quick Ratio (x) 1.2 1.6 1.5 1.4
Net cash flow 531.2 836.2 (321.7) (176.7) Net Debt/Equity (X) cash cash cash cash
Capex to Debt (%) 0.9 2.5 2.4 2.1
N.Cash/(Debt)PS (sen) 28.8 81.0 60.9 49.8
Opg CFPS (sen) 52.4 25.1 28.0 31.0
Free CFPS (sen) 61.5 (25.2) (17.7) (8.3)

Sources: Company, Maybank-IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Appendix 1: Group structure

Snapshot of companies

Source: Company

4 January 2011

Appendix 2: Who’s who in MHB
MHB’s Operating Structure
Source: Company
Who’s who in key management
Name
Wan Yusoff bin Wan Hamat
Wan Mashitah binti Wan Abdullah Sani
Ausmal bin Kardin
Manoel Francisco Avelino Gomes
Rooyahaiti binti Yakub
Mohamed Za'aba bin Hj. Abbas
Source: Company
The Board of Directors
Name
Datuk Nasarudin bin Md Idris
Dato' Halipah binti Esa
Wan Yusoff bin Wan Hamat
Yee Yang Chien
Heng Heyok Chiang @ Heng Hock
Cheng
Captain Rajalingam a/l Subramaniam
Datuk Khoo Eng Choo
Source: Company
4 January 2011
Designation
CEO/Executive Director & Managing
Director
Chief Financial Officer
General Manager, Legal &
Administration
General Manager, Marketing & Sales
General Manager, Human Resource
General Manager, Engineering &
Construction/Acting Head of
Turkmenistan Operation
Designation
Non-Independent Non Executive
Director & Chairman
Independent Non Executive Director
Non-Independent Executive Director
& Managing Director/CEO of MHB
Non-Independent Non Executive
Director & VP Corporate Planning
and Development, MISC
Independent Non Executive Director
Non-Independent Non Executive
Director & VP Fleet Management,
MISC
Independent Non Executive Director
Malaysia Marine and Heavy Engineering Holdings Berhad
Remarks
 Honours degree in Engineering Production, University of Birmingham, UK
 27 years of leadership roles in numerous PETRONAS businesses
 Fellow member of the ACCA
 8 years in MISC
 LLB, University of Wales, Aberystwyth, licensed Company Secretary
 11 years in MISC & 4 years in Bumi Armada Berhad
 MBA, Brunel University & Bachelor of Engineering (Mechanical), University of Singapore
 Member of Institute of Engineers & Board of Engineers, Malaysia (BOEM) Professional
Engineer (Mechanical)
 11 years in MMHE
 Masters in Human Resource Development, University of Hull, UK and Diploma in Human
Resources Managements, Malaysian Institute of Human Resources Management
 Previously involved in human resource management and development
 Diploma in Marine Engineering, Ungku Omar Polytechnic
 18 years in MMHE in multiple technical capacities
 Turkmenistan project steering committee chairman
Remarks
 MBA, Brunel University, UK , Bachelor of Arts, University of Malaya
 Stanford Executive Programme, Stanford University, USA
 32 years of leadership roles in numerous PETRONAS businesses
 Masters and Degree in Economics, University of Malaya, Certificates in Advanced
Economic Management from IMF Institute USA and Kiel Institute of World Economics,
Germany and Certificate in Advanced Management Programme from Adam Smith
Institute, London
 Served in the EPU and MoF from 1973 to 2006
 Was previously a consultant to the World Bank and UNDP
 Honours Degree in Engineering Production, University of Birmingham, UK
 27 years of leadership roles in numerous PETRONAS businesses
 Degrees in Financial Accounting/ Management and Economics, University of Sheffield,
UK
 7 years in MISC, 10 years involvement in Investment Banking & Auditing
 Bachelor of Science in Chemical Engineering, University of Birmingham, UK
 34 years of leadership roles in numerous Shell businesses worldwide
 MBA, University Utara Malaysia & Master certificate of competency-
foreign going, Akademi Laut Malaysia (ALAM)
 27 years in various roles in MISC
 MBA, University of Bath, UK
 Chartered Accountant and member of Malaysian Institute of Certified Public Accountants
and Malaysian Institute of Accountants
 Over a decade of service in PriceWaterhouseCoopers
 Malaysia Marine and Heavy Engineering Holdings Berhad

Appendix 3: Corporate and business milestones

Snapshot of its established track record and engineering achievements

Source: Company

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Appendix 4: Global expenditure programmes

Global deepwater expenditure (USD’b)
Western Europe North America Others Latin America Australasia Asia Africa
35
30
25
20
15
10
5
0
2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F

Source: Douglas-Westwood
Global offshore expenditure by region (2004-13)
(USD' b) Western Europe NorthAmerica MiddleEast LatinAmerica
400
EasternEurope& FSU Australasia Asia Africa
350
300
250
200
150
100
50
0
2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F

Source: Douglas-Westwood
Expanding LNG capacity by region (2005-14)

(mmtpa) WesternEurope NorthAmerica Middle East Latin America

400
Eastern Europe& FSU Australasia Asia Africa
350
300
250
200
150
100
50
0
2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F

Source: Douglas-Westwood
Global floating production expenditure (2004-13)
(USD' b) WesternEurope North America Middle East
14 LatinAmerica Eastern Europe &FSU Australasia
12 Asia Africa Order Year
10
8
6
4
2
0
2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F

Source: Douglas-Westwood

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Appendix 5: Global yards (ex-Asia)

Global yards (ex-Asia)

Source: Maybank IB

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Glossary
Aframax tankers : Class of crude carriers, with a loading capacity between 80,000 dwt and 120,000 dwt
bulkhead : A reinforced retaining wall at the seafront used to offload heavy structures from the yard onto
transporting vessels

buoy : Unmanned floating structure used for mooring units offshore

chemical tankers : Chemical tankers equipped with appropriate machinery and fitted with inert tank linings, used to
handle the transport of potentially corrosive chemicals such as sulphuric acid
cu. m : Cubic metres, the unit used tom measure the volumetric cargo carrying capacity of LNG carriers
deepwater : Water depths equal to or more than 300 metres
dry-dock : Narrow basin, typically in a shipyard, that can be flooded to allow a vessel to be floated in, then
drained to allow the vessels to rest on a dry platform for maintenance and repairs
dwt : Deadweight tones, the measure used to measure ship capacity, equal to a vessel`s fully loaded
weight minus the weight of the empty vessel
E&P : Exploration and production
employment : Aggregate ship capacity actually utilised to transport cargo
employment rate : Utilisation rate, the ratio between vessel utilisation and supply
EPC : Engineering, procurement and construction, used to describe a contract between a company and
a contractor to perform detailed engineering, procurement of materials and construction of
structures
EPCIC : Engineering, procurement and construction, installation and commission, used to describe a
contract between a company and a contractor to perform detailed engineering, procurement of
materials, construction of structures, transport to site, installation and commissioning
(preparatory activities to commence operations)
FEED : Front-end engineering and design, includes the process of defining a project's basic systems
(conceptual schemes), the detailed evaluation of these conceptual schemes in preparation for
execution and the basic engineering conducted before project approval
FIELD : Geographical area under which an oil or gas reservoir lies. Also refers to an area consisting of a
single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological
structural feature or stratigraphic condition
FPS : Floating production system a collective term for all types of floating production units, including
FPSOs, semi-submersibles, TLPs, SPARs and FSOs. Semi-submersibles, TLPs and SPARs are
normally deployed in locations with pipeline infrastructure, since they typically do not have
storage facilities.
FPSO : Floating production, storage, offloading system, an offshore system comprising a large tanker
equipped with a high capacity production facility. FPSOs are moored at the bow to the seabed to
maintain a geo-stationary position, and serve as a fixed platform using risers to connect subsea
wellheads to on-board processing/production, storage and offloading system
FSO : Floating, storage, and offloading, a vessel that stores crude oil produced from a fixer or floating
platform
IOC : International oil company, large integrated oil and gas company operating in numerous countries
around the world
jacket : Structure under a platform fixed to the seabed using piles
jackup : Mobile self-lifting unit comprising a hull and retractable legs used for offshore drilling operations
landberth : Onshore berth for vessel docking and repair
living quarters : Modules designed to provide living space for personnel working on an offshore platform
Source: Company

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Glossary
LNG : Liquefied natural gas obtained by cooling natural gas to minus 160C at normal atmospheric
pressure. One MT of LNG is equal to 1,400 cubic metres of natural gas at normal temperature and
pressure
LNG Carriers : Double-hulled ships specially designed to carry LNG (primarily ethane and methane) under very
low temperature
LPG : Liquefied petroleum gas, used for heating or as a fuel for vehicles
MODU : Mobile offshore drilling unit, a drilling rig used to drill offshore exploration and development wells
that floats on the water surface when being moved from one drill site to another. Basic types of
mobile units include bottom-supported drilling rigs and floating drilling rigs
modules : Modular sets of equipment designed to perform one or more functions and be installed on an
offshore platform
mooring buoy : Offshore mooring system
MOPU : Mobile offshore production unit, a unit capable of floating that is used to perform offshore
production. Basic types of mobile units include bottom-supported units and floating units
NOC : National oil company, oil and gas company owned by a national government, typically having
special rights or access to its local market
OPEC : Organization of the Petroleum Exporting Countries, currently composed of Algeria, Angola,
Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and
Venezuela
platform : Offshore structure that is permanently fixed to the seabed
PSC : Production sharing contract, an agreement between the parties to a well and a host country
regarding the percentage of production, each party will receive after the participating parties have
recovered a specified amount of costs and expenses
product tankers : Oil tankers equipped with appropriate machinery to handle volatile oil products such as petrol,
kerosene and diesel oil
riser : Pipe or assembly of pipes used to transfer fluids from the seabed to surface facilities or to transfer
injection fluids, control fluids, or lift gas from the surface facilities to the seabed. Risers can be
either rigid or flexible
semi-submersible : Floating offshore system with pontoons and columns on which drilling or production facilities can
be mounted. When flooded, the unit submerges to a predetermined depth. Semi-submersibles are
either self-propelled or towed to the offshore site and are either anchored or dynamically
positioned over the site or ballasted to rest on the seabed
shiplift : Structural platform that is connected to a number of winches and hoist systems to dock and un-
dock vessels
skid-track : System using planks to make a track for rolling or sliding objects
SPAR : A vertical, cylindrical structure with the majority of the hull underwater. The deep hull of a spar
lowers its centre of gravity, making the structure more stable. Also known as a deep draught
caisson vessel
substructure : Structure that supports topsides and normally contains space for storage and well-control
equipment
TLP : Tension leg platform, a TLP has a deck on a pontoon column structure moored to the seabed with
steel tendons
topside : Oil production facility above the water, usually on a platform or production unit for drilling,
production, accommodation or a mixture of these purposes
turret : Rotating structures used with the FPSOs to attach lines to the unit, allowing the lines to remained
connected while the unit moves ; turrets may be internal or external to the FPSO
ULCC or ULCC vessels : Ultra-large crude oil carriers, crude oil tankers with a loading capacity above 300,000 dwt
VLCC or VLCC vessels : Very large crude oil carriers, crude oil tankers with a loading capacity between 200,000 dwt and
300,000 dwt
Source: Company

4 January 2011
 Malaysia Marine and Heavy Engineering Holdings Berhad

Definition of Ratings
Maybank Investment Bank Research uses the following rating system:
BUY Total return is expected to be above 10% in the next 12 months
HOLD Total return is expected to be between -5% to 10% in the next 12 months
SELL Total return is expected to be below -5% in 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.

Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings
BV = Book Value FV = Fair Value PEG = PE Ratio To Growth
CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio
Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter
CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset
DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity
DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds
EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital
EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year
EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date
EV = Enterprise Value PBT = Profit Before Tax

Disclaimer
This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation
of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each
security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental
ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on
price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may
receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to
provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the
particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding
the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently
verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by
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4 January 2011