Slow start to MMHE’s FY18 as 1Q losses widen by 52 pct
KUALA LUMPUR: It was a tough start to Malaysia Marine and Heavy Engineering Holdings Bhd’s (MMHE) financial year 2018 (FY18) as it fell back into a loss of RM25.3 million in the first quarter (1Q).
Affin Hwang Investment Bank Bhd (AffinHwang Capital) said the results were within its expectations as MMHE’s Bokor central processing platform (CPP) offshore Sarawak and progressive variation orders are expected to make up for the 1Q18 losses, alongside with better marine prospects.
This came as its 1Q18 revenue fell 20 per cent year on year (yo-y), attributed to weaker heavy engineering (a drop by 28 per cent) and marine (drop by seven per cent) performances.
“Heavy engineering saw a lower revenue due to new projects still at early stages of Bokor’s execution while executing on existing smaller-value projects (Sepat A and 4 RAPID packages),” it said in a report yesterday.
“Marine segment saw clients deferring on their initial dry docking schedules.”
Aside from the fewer jobs in 1Q18, AffinHwang Capital saw that MMHE’s sequential earnings were also weaker as its 4Q17 performance formed a high base, lifted by high VOs for heavy engineering projects that were already completed.
Tax credits also helped push earnings higher in 4Q17, it added.
Despite crude oil prices and the overall operating climate improving, MIDF Amanah Investment Bank Bhd (MIDF Research) said FY18 would continue to be a challenging year for MMHE, especially for its heavy engineering segment.
“This is predominantly due to the timing differences in revenue and profit recognition between tail-end projects and new projects,” it said in a separate report.
“The large portion of its orderbook consist of the RM1b Bokor CPP job which will only undergo the first steel cut in 3QFY18 – the large portion of works will happen only in FY19.
In addition, its Marine segment is already operating at its ideal capacity.
The company’s current orderbook as of March 2018 stood at RM1.22 billion. As for the marine segment, an estimated RM350 million to RM400 million worth of works are expected to be executed in FY18 – comparable to RM365 million worth of marine works executed in FY17.
The company’s tenderbook and prospective works are currently at around RM5.6 billion, observed MIDF Research, of which 80 per cent consisting local bids and 20 per cent international bids.
“We maintain our neutral stance on MMHE with an unchanged target price of RM0.87 per share,” MIDF Research highlighted.
“The focus for the company moving forward now is on the expansion of the Marine segment with Dry Dock 3 and also jobs from within the refinery and petrochemical integrated development (RAPID) in Pengerang, Johor.”
AffinHwang Capital meanwhile kept its hold rating and target price of RM0.80 for MMHE, adding that key upside risks include any recovery in the industry capex cycle leading to more projects being sanctioned.