MALAYSIA MARINE AND HEAVY ENGINEERING HOLDINGS BHD

Target Price: RM0.82

MALAYSIA Marine and Heavy Engineering Holdings Bhd (MMHE) posted an unexpected strong fourth quarter, despite a decline in revenue.

Kenanga Research said the strong earnings were mainly contributed by MMHE’s heavy engineering segment due to the recognition of additional variation orders from completed projects, such as SK316 and Malikai.

Even though revenue dropped by 18%, MMHE managed to return to the black from core losses of RM40.3mil in fourth quarter ended Dec 31, 2017, thanks to the better heavy engineering segment offsetting the poorer performance of marine segment (minus 76%).

Kenanga said MMHE’s order book fell to RM1.3bil from RM1.4bil in third quarter of 2017 without major contract win during the quarter.

Its current tender remained at RM4bil, of which about 80% are related to local projects. Kenanga concurred that the tender enquiries are on an uptrend but timing of award remains uncertain.

It pointed out that MMHE would still focus on its existing core businesses while seeking floater conversion jobs internationally.

The research house has raised its forecast on MMHE’s FY18 earnings estimate by 40% to RM30.6mil.

Meanwhile, for FY19 earnings estimate of RM45.2mil or 48% year-on-year growth on assumption of RM500mil order-book replenishment, and 10% growth in marine revenue. Kenanga has upgraded MMHE to “market perform” call with higher target price of 82 sen from 65 sen previously, pegged to FY18 estimate price-to-book value of 0.5 times from 0.4 times.

The risks to its rating includes stronger-than-expected project wins, stronger-than-expected margins, and higher contract replenishment.

Kenanga pointed out that MMHE’s net cash position improved to RM675mil in the fourth quarter from RM614.9mil in the corresponding quarter, which is equivalent to 42 sen per share.