MMHE offering seen raising up to RM1.1bil

Malaysian Marine & Heavy Engineering Holdings Bhd’s (MMHE) initial public offering (IPO) could potentially raise between RM854.4mil and RM1.12bil, priced in the range of RM2.09 to RM2.76 a share According to an MIDF Research report, this was based on the industry price/earnings ratio (PER) band of 12 to 15.8 times to MMHE financial year 2010 earnings.
MMHE is a wholly owned subsidiary of shipping giant MISC Bhd. It is a key revenue contributor to its parent company and recorded a net profit of RM279.2mil on revenue of RM6.15bil in the financial year ended March 31, 2010.
“For comparison, several IPOs of shipyards such as Pipavav, which is located and listed in India, and Yangzijiang Shipbuilding, a Chinese shipbuilder listed in Singapore, raised US$110mil (RM351.7mil) and US$430mil respectively.
“And the cancelled IPO of New Century Shipbuilding Ltd, the fifth largest shipbuilder in China, was expected to raise US$483mil and would have been this year’s biggest in Singapore.
 “Valuation-wise, the cancelled IPO of New Century would have given a PER of seven to 8.5 times based on the indicative price, while Yangzijiang commands around 12 times,” it said.
Meanwhile, OSK Research said in its report that MMHE’s potential IPO price could be around RM4.71 a share based on applied PE assumption of 20 times with expected market capitalisation RM7.5bil.
Last Friday, MISC in its filing with Bursa Malaysia, proposed the listing of MMHE on the Main Market via an offer for sale of 25.5% or 408 million of its enlarged capital of 1.6 billion shares.
The proposed IPO would increase MMHE’s authorised capital to RM2.5bil comprising five billion 50 sen shares and a one-into-two share split of existing shares.
MMHE proposed to undertake a cash dividend payout of RM300mil to MISC and a bonus issue of 1.3 billion shares on the basis of 40.245 shares for each MMHE share.
The institutional portion of MMHE’s IPO would comprise 146 million shares, or a 9.12% stake, at a price to be determined via a book-building exercise.
The public issue would comprise 262 million new shares, or a 16.38% stake, of which 32 million shares would be allocated via balloting to the public.
The IPO is expected to be completed in the fourth quarter of this year. However, there were no details on the pricing in the Bursa filing.
OSK Research said the IPO proceeds would be timely for yard expansion.
MMHE, which specialises in engineering and construction, marine repairs and conversion, currently has an order-book of more than RM6bil.
“MMHE has carried out a yard optimisation programme at its two yards since 2006, which is expected to be completed in the first half of 2014.
“The total estimated cost and the working capital for the optimisation programme is RM2.7bil and as at June 30, MMHE had invested some RM548mil,” it said.
MIDF Research expected the IPO to be beneficial to MISC as the funds raised could be used for further expansion such as acquisition of more tankers.
“Although there would be dilution to MISC’s income from MMHE, we expect the impact to be minimal.
“The RM300mil cash dividend from MMHE and the funds raised from the IPO will also reduce MISC’s gearing level from 0.37 to 0.29 times,” it said.