MMHE likely to remain in the red this year

Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) is expected to remain in the red this year, after the oil and gas fabricator reported losses for the seventh consecutive quarter.

Following its recently-announced weak earnings in the first half of financial year 2017, sentiments are rather bearish on the company’s outlook for the rest of the year. However, moving beyond FY17, analysts are divided on MMHE’s financial performance prospects amid the company’s strong order book.

RHB Research indicated that MMHE is highly unlikely to register good earnings in the current financial year. Despite the negative anticipation, the research unit opined that more values will emerge from the oil and gas fabricator’s operations, underpinned by greater project deliveries in FY18 and a stronger marine business segment.

“FY17 would be a forgettable year for MMHE, as it faces a dwindling orderbook with most of its projects being completed during the year. However, we believe value is starting to emerge as we get closer to FY18.

“It has a clean balance sheet with marginal borrowings and the stock is trading at a deep discount to regional peers.

“We expect MMHE to start registering profit in FY18, backed by its RM1.6bil order book,” said the research house in a note.

RHB Research, which upgraded its recommendation on MMHE to “buy” with a lower target price of 90 sen, added that MMHE’s order book has been given a boost after it secured the RM1bil contract from Petronas earlier this year.

“At the start of the year, its order book position of only RM1.1bil looked grim, at its lowest in five years. However, the RM1bil contract for a central processing platform for the Bokor field in Sarawak, is expected to provide some relief for the heavy engineering segment moving forward,” said the research house.

Note that MMHE has secured contracts worth a total of RM1.3bil year-to-date, compared to RM679mil in the entire FY16.

Meanwhile, Maybank IB Research has reduced its FY18-19 earnings forecast on MMHE to reflect further operating challenges ahead.

“The RM1.8bil tenders aside, the first half of 2018 will likely be a slower period compared to the rest six months, as the Bokor contract works will only commence in the third quarter of 2018.

“For that, we cut FY18 revenue forecast by 19% to RM1bil and expect MMHE to be in the red in FY18, with net loss of RM25mil. Correspondingly, we have cut FY19 earnings by 93% to RM300,000,” it stated in an earlier note.

The research house upgraded its call on MMHE to “hold” and revised the target price lower to 75 sen.

Kenanga Research pointed out that MMHE is likely to record a bigger net loss in the second half of this year, since its yard utilisation is expected to remain below 50% until the Bokor project commences.

“As the group did not secure any substantial orders over the past three months, MMHE’s outstanding order book has dropped by 24% quarter-on-quarter from RM2.1bil to RM1.6bil,” it said.

The Main Market-listed MMHE saw its net loss for the second quarter ended June 30, 2017 widen to RM13.7mil, compared with a loss of RM2.5mil a year ago.

The oil and gas fabricator’s revenue for the quarter was also down 13.5% year-on-year (y-o-y) to RM257.3mil, following lower revenue contribution from its heavy engineering segment.

For the first half of the year, net losses widened to RM30.3mil from RM10.1mil, while revenue for the period was 11% y-o-y lower RM493.1mil.

Its shares closed one sen down to 70 sen last Friday.