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KUCHING: The potential entrance of South Korean Hyundai Heavy Industries (Hyundai) could spell a permanent change in the local fabrication landscape, analysts observed.

This could also mean pressure margins and reduce the appeal to pure domestic fabricators with single business focus such as Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE).

The research arm of Affin Hwang Investment Bank Bhd (Affin Research) in a report saidHyundai is close to securing a US$1 billion engineering, procurement and fabrication contract for the central processing platform for the Baram Delta Gas Gathering Project 2 (Bardegg 2) and Baronia enhanced oil recovery project off Malaysia.

This contract, if awarded to Hyundai, will mark the South Koreans second major Malaysia contract wins this year. The group had in June 2014 secured a turnkey contract from Hess to build a large central processing platform under the North Malay basin gas and condensate development, it added.

We opine that the potential entrance of South Korean yard would permanently change the local fabrication landscape, pressure margins and reduce the appeal of MMHE, Affin Research commented.

Furthermore, Affin Research highlighted, as a domestic oil & gas company with single business focus, MMHE is more vulnerable to lower domestic upstream capital expenditure (capex).

It explained, Our economist has recently lowered our 2015 estimate Brent crude price forecast to US$75 per bbl, from US$85 per bbl on large global oil production surplus and OPECs decision to not intervene in the oil market. The lower oil price has pressured Petroliam Nasional Bhd (Petronas) to cut its 2015 capex by 15 to 20 per cent.

As of now, Affin Research noted, MMHE has secured a mere RM323 million contracts year to date (YTD), significantly lower than its RM1.7 billion to RM2.9 billion contract wins in 2011 to 2013. It noted the contract awards to the South Korean yards signalled that Petronas is now highly focused on cost control.

On its outlook, Affin Research said while it expects MMHE to secure some RM1.2 billion to RM1.5 billion worth of contracts per annum in 2015-16E, it believed that its bids would need to be highly competitive and hence, its profit margins might come under pressure.

It noted, MMHE is now undergoing a rightsizing exercise with its project partner Technip Malaysia. It said, in the first half of 2014 (1H14), MMHE had undertaken mutual separation scheme involving 100 employees.

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Site Last Updated 2:05 am, Friday