MMHE back in the black after seven quarters of losses consecutively
KUALA LUMPUR: After seven consecutive quarters of losses, Malaysia Marine and Heavy Engineering Bhd ( MMHE) is finally back into the black with a third quarter of financial year 2017 (3QFY17) profit of RM16.4 million.
On a cumulative basis however, the group’s earnings for the first nine months of Fy17 (9M17) is still at a loss of RM13.9 million.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), this encouraging sign of improvement for MMHE was due to declining losses in the group’s heavy engineering segment which narrowed to minus RM48.3 million in 9MFY17 from minus RM73.3 million in 9MFY16.
“The narrower losses were due to a finalisation of completed projects in the current quarter,” said the research arm in a company update.
In 1QFY17, the group completed their Besar-A wellhead platform (WHP) topside jacket and Hook-Up and commissioning (HUC), F12 Kumang WHP top- side jacket and HUC, and Baronia CPP jacket, Bridge and piles projects.
While in 2QFY17 and 3QFY17, the group completed their refinery and petrochemical integrated development project (Rapid) package 22 of plate rolling, rapid package 3 of pipe support fabrication and their modification and rejuvenation of facilities improvement projects.
Currently, the only significant heavy engineering project left for the group is the RM1.0 billion Petronas Bokor project which was secured earlier this year in April.
The project’s current progress is at 3 per cent with first steel In addition, the group’s marine segment has also continued to be a significant earnings contributor with a maintained operating profitability at RM40.7 million despite revenue declining by 11 per cent year over year (y-o-y).
“The lower revenue is due to lower contract value and number of LNG vessels repaired while the operating profit is attributable to recognition of approved changed orders from on-going conversion projects,” explained MIDF Re- search.
Looking forward, the research arm also notes that the group’s fo- cus will be shifting towards the expansion of its profitable marine segment with its Dry Dock 3 and further jobs from within Rapid.
Overall, the sudden swing into profit this quarter is an encouraging sign the MMHE is in an improving operating position has been warmly received by investors as MMHE’s share price has rallied by more than 8 per cent in a single day since the results were announced.
MIDF Research however, guides that they are still weary of the group’s declining orderbook, lumpy earnings recognition and the various stages of project completion for its heavy engineering projects.
As of September 2017, the group’s current orderbook stands at RM1.4 billion with an expected additional RM100 million worth of marine works to be added in 4QFY17.
And with the recent rally in share price levels, the research arm is recommending investors to adopt a profit-taking position.
“Hence, we are downgrading our call on MMHE to ‘sell’ with an unchanged target price of RM0.70 per share,” concluded the research arm.