MMHE regains momentum in 3Q amidst adversity
KUCHING: Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) staged a turnaround to the black in its third quarter of financial year 2020 (3QFY20) with a net profit of RM2.7 million – a sizable turnaround from core net loss of RM97 million recorded in 2QFY20, as the previous quarter saw some suspension of operations in compliance with the movement control order (MCO).
On a year on year (y- o-y) basis, researchers with Kenanga Investment Bank Bhd ( Kenanga Research) said MMHE managed a turnaround from losses of RM4.7 million in 3QFY19, helped by the turnaround in its heavy engineering segment, which saw increased activities in ongoing projects.
“This was partially offset by the slower vessel repair and maintenance activities, impacting its marine segment,” it said in a note yesterday. “Cumulatively, its first nine months of FY20 saw core net loss almost doubling y- o-y as the group’s yards suffered suspension of works in 2QFY20 in compliance with the MCO. Yards have resumed operations since April 2020.”
Barring another mandatory suspension of operations, Kenanga Research saw that the rebound seen in 3QFY20 should signal that the deep losses are very unlikely to recur.
“That said, we expect the upcoming 4QFY20 to post a sequentially weaker set of
results, as the 3QFY20 quarter saw the sail away and completion ofseveral of the group’s projects, most notably Bokor Phase 3 central processing platform,” it added.
“Currently the group’s order book stands at RM2.5 billion (providing 2-3 years’ revenue visibility), with its largest project – EPCIC Kasawari gas development, currently at 23 per cent progress.
“Given that earnings recognition from projects tends to generally back loaded towards the later stages, earnings from Kasawari may only be felt in subsequent quarters down the road.”
Meanwhile, MMHE’s tenderbook currently stands at RM12.26 billion with 79 per cent of the tenders are for international projects with the
remaining 21 per cent are for local projects respectively.
MIDF Amanah Investment Bank Bhd ( MIDF Research) maintained its FY20-21F earnings expectations at this juncture as it believes that MMHE will be able to meet its earnings projections.
“That said, we have factored in our current projections; a slower recovery in earnings following the recent development of Covid19 globally which is currently seeing newly infected cases elevating in some countries.
“We are upgrading our recommendation on MHB to TRADING BUY (from NEUTRAL previously). We opine that the upgrade is timely given that we believe that the worst is over for the company and MHB’s earnings could potentially surprise on the upside in the near future
despite the current challenging operating environment.”
“This is as we are expecting MHB will stage gradual and steady recovery from 2HFY20 onwards to be driven by better revenue recognition from ongoing projects as progress of project increases, and completion of Dry Dock 3 which is expected to start contributing in terms of revenue in 1QFY21.”
While the current operating environment plagued by the Covid-19 pandemic has yet to show signs of abating – which could dampen its chances of securing new projects, MIDF Research opine that MHB’s performance going forward will be more reliant on its effort in improving internal operational condition and maintaining uninterupted progress of its ongoing projects.