MMHE faces possible tender book risk, FY19 another challenging period
KUALA LUMPUR: Shares in Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) slipped yesterday after analysts believe that financial year 2019 (FY19) will be another challenging period for the group.
At 11am, the shares were down by 1.5 sen to 64.5 sen qwhile 701,100 shares exchanged hands.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the tender book risk will likely arise from the delay of the Kasawari gas project.
“With the Kasawari gas project reportedly to be delayed, we see a potential tender-book risk for MMHE,” Kenanga Research said.
“To recap, MMHE was one of the favourites to land the EPCIC contract for the central processing platform (CPP) for the Kasawari gas project off Sarawak, which we believe contributes to the bulk of its tender-book, currently standing at around RM5.5 billion.
“Initially, the contract award was expected to be announced by the first quarter of 2019 (1Q19), but with its status still up in the clouds, we do not have any visibility on the issue at the moment.”
On a brighter note, the research arm believed FY19 should likely to see an earnings recovery, driven by recovery in MMHE’s marine segment given the heavy deferments of dry docking activities in 2018, and coupled with slight earnings recognition from construction progress of Bokor CPP.
In contrast, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) believed the group will face another challenging period in FY19.
“Going into FY19, we opine that it will continue to be a challenging period for MMHE, which is predominantly due to the timing differences in revenue and profit recognition between tail-end
projects and new projects,” MIDF Research said.
“The large portion of its orderbook consists of the RM1 billion Bokor CPP job where the major portion of the works will happen only in FY19.
“The revenue and earnings for the Bokor CPP project are slated to only be recognised at the later stage of the project.”
That said, MMHE’s Marine segment could potentially benefit from increased in marine repair activities in the coming year due to the impending compliance to the International Maritime Organisation (IMO) fuel sulphur cap ruling by January 2020 - which the research arm opined could potentially drive dry docking activities at both the group’s dry docks.
“While we understand that market activities have picked up since the second half of FY18 (2HFY18), job awards have only been actively given out in the Middle East region and in India while regions such as North Asia and South East Asia have seen a rather muted job awards.
“In addition, under its LTA with Saudi Aramco and frame agreement with Petronas; we understand from the Management that bids for projects under these two agreements have begun and the company is expecting some jobs to be awarded during the year.”