MMHE’s FY23 results disappoints as losses of RM490 mln exceed loss forecasts

KUCHING: Malaysia Marine & Heavy Engineering Bhd’s (MMHE) financial year 2023 (FY23) results has disappointed as its full-year losses came in at RM490.1 million, wider than consensus full-year forecasts of a RM132.3 million loss.

In a results review, the research arm of RHB Investment Bank Bhd (RHB Research) guided that the negative deviation was due to MMHE still incurring additional cost provisions for an ongoing project.

These unceasing cost provisions caused MMHE to miss expectations despite the group managing to double its revenue year on year (y-o-y) from RM1.7 billion in FY22 to RM3.3 billion in FY23.

“The revenue increase can be attributed to higher project billings from the heavy engineering (HE) division,” said the research arm.

During the fourth quarter of 2023 (4Q23), MMHE returned back to the black with a core net profit (CNP) of RM9.4 million as its HE segment managed to register a pre-tax profit of RM7.4 million.

It still incurred cost provisions during this quarter but it was offset by the reversal of provisions from completed projects.

“However, the marine segment’s operating profit declined 54 per cent quarter on quarter (q-o-q) to RM2 million from RM4.4 million in 3QFY23 due to lower margin jobs amid increasing competition from China,” said RHB Research.

Looking ahead, analysts at MIDF Amanah Investment Bank Bhd (MIDF Research) reckoned that MMHE’s results will continue to be weighted by the impact of provision cost incurred by their ongoing HE projects.

“Additionally, the weakening ringgit against the US dollar as also disrupted the supply chain in its operations, in addition to the winter season deescalating dry-docking operation in 4QFY23,” MIDF Research said.

That said, the research arm opined that MMHE might see some reprieve as expectation of increased liquefied natural gas (LNG) trading in the near future can help cushion some of the impact from the winter season.

On the other hand, RHB Research believed that MMHE’s strong pipeline of orders, along with its ongoing efforts of its recovery claims, will ensure profitability in the medium to long-term.

“Its tenderbook stands at RM6 to 7 billion, with a 50:50 split between domestic and international jobs. Moving forward, MMHE is looking to balance its portfolio between oil and gas and renewable energy opportunities,” said RHB Research.

“For the marine business, we expect to see softer quarters ahead from stiff competition amid the reopening of China’s yard. Current utilisations for dry docks are guided at 50 to 80 per cent,” they added.

Midf Research added that MMHE is also looking into opportunities in the renewable energy space which will inevitable translate to more businesses in the long-term as clean energy demand is expected to heighten moving forward.

“In addition to MMHE’s awarded offshore windfarm project and involvement in topside construction for CCS fields, we believe the group has the potential to venture into more clean energy ventures within its heavy engineering and marine services in the near future,” they shared.

As of 4QFY23, MMHE is back to a net cash position of RM190 million while its orderbook sits at RM6.3 billion with visibility up to FY27.