MHB’s near-term outlook continue to be challenging

KUCHING: Malaysia Marine and Heavy Engineering Holdings Bhd’s (MHB) near-term outlook continues to look challenging as the group’s results for its second quarter of financial year 2017 (2QFY17) slumps into the red with a core loss of RM9.8 million.

Year on year (y-o-y), the loss was a stark contrast to the profit of RM10.8 million reported in 2QFY17. This was cited to be due to weaker contribution from MHB’s off shore segment resulting from the completion of major projects, and the higher joint-venture losses experienced.

In an update, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted that the loss was way below consensus expectations of a RM10.9 million net profit.

It added that higher operational costs and the absence of a oneoff income from the settlement of a certain legal case were also contributing factors to the disappointing quarter from MHB.

Cumulatively, MHB also recorded a RM9.8 million core net loss in the first half of FY17 (1HFY17) from a profit of RM40.8 million as the group finished its delivery of major offshore projects such as the Kumang F12 well-head platform (WHP) Topside Jacket and hook- up contract (HUC); Baronia Central processing platform (CPP) bridge and piles; and Besar A WHP Topside Jacket and HUC.

The completion of the projects in 1HFY17 left the group’s orderbook at RM1.6 billion – mostly comprised of only four packages in RAPID- related projects, and recently awarded Bokor CPP which will only see significant earnings recognition in 1HFY18 as it is currently still in its engineering phase.

Additionally, the deferment of the rumoured Petronas maintenance, construction and modification award has dealt further blows to the group’s orderbook replenishment outlook for 2017.

Due to this, HLIB Research has cut its initial earnings forecast from a profit of RM27 million to a loss of RM25 million, alongside a 11 per cent trim to its FY1819 earnings estimates as they adjust for lower offshore revenue recognition and margins from the group.

“Weaker than expected orderbook replenishment and deferment of major MCM project has reduced likelihood of the group turning into black this year. We do not foresee major earnings catalyst in the near term,” said HLIB Research.

Similarly, Kenanga Research also slashed its FY18E earnings by 15 per cent to RM21.8 million in light of MHB’s current offshore project margins.

On the other hand however, the group’s marine segment has seen significantly better performance as its revenue and operating income soared by 24.6 per cent and over 200 per cent y-o-y, respectively.

According to the research arm of MIDF Amanah Investment Bank Bhd ( Midf Research), the significant performance boost was premised on higher conversion works but negated by lower LNG vessel repairs.

“Nevertheless, operating profit margins also more than doubled y-o-y and management expects operating margin to improve further in 2HFY17,” reported the research house.