MMHE seen remaining in the red in fiscal 2018
But some analysts think the worst is over
PETALING JAYA: Malaysia Marine and Heavy Engineering (MMHE) Holdings Bhd is expected to continue incurring losses in financial year 2018 (FY18), dragged down by its heavy engineering unit but partially cushioned by higher dry-docking activities from the marine side.
However, some analysts reckon that the worst is over for the stock, with the company showing a business turnaround,
Maybank IB Research said the expected losses in FY18 were well-flagged and that the company is on firmer footing, from cost/ cashflow perspectives.
“Bids prospects are improving. Its tenders pipeline is on the rise, up 54% quarter-on-quarter (q-o-q) to RM4.3bil as at endJune 2018, on improving external conditions (ie oil price, capex, sentiment).
“MMHE expects to convert some of these to new wins by end-FY18. For that, we rule out any asset impairment thought for FY18,” it said in a report yesterday.
The company posted a core loss of RM75mil for the first half of FY18 (H1’18)
Despite the losses, MMHE reported a 9% q-o-q rise in cash level to RM561mil or (RM0.35 per share) as at the end of June.
Maybank IB Research said a rise in orders replenishment will be an immediate re-rating catalyst, while its current valuations are inexpensive given that the stock is trading at a near historical low.
It has a “buy” on the stock with a 12-month target price of RM1.00.
Shares of MMC, which is which is 66.5% owned by MISC Bhd, closed 9.43% lower or by 7.5 sen to 72 sen yesterday,with 3.94 million shares traded.
On the other hand, Kenanga Research is of the view that a turnaround might be slower than expected.
The research house has downgraded the counter to “underperform” with a lower target price of 69.5 sen from 82 sen previously.
“Our downgrade is premised on prolonged period of losses anticipated at its heavy engineering unit with longer than expected turnaround, and the bulk of the RM1.1bil orderbook is over reliant on its Bokor project (circa 80%) which yields thin margins.
“Large tenders have yet to awards,” it noted in its report.
It wrote that the company’s H1’18 core loss of RM75mil came in below Kenanga’s and consensus forecasts of RM31mil and RM25mil respectively.
This was owing to unforeseen losses at its marine division due to lower-than-expected dry-docking activities coupled with unanticipated upfront variation orders cost and wider-than expected losses from its heavy engineering unit.
According to Kenanga, MMHE has indicat- translate to ed that the Bokor EPCIC project is progressing ahead of schedule but with minimal profit recognition as profits are back loaded given that projects risks are still high.
“Therefore, we foresee MHB’s heavy engineering unit to remain subdued for the rest of FY18 with contributions only kicking in from FY19, albeit minimal.
“While we expect dry docking activities to pick up from deferral in H1’18, we believe it would not be sufficient to reverse the losses already incurred,” it added.
The research house noted that while itstender book has grown to RM4bil from RM2.8bil in Q1’18, MMHE has yet to secure any contracts year to date, versus Kenanga’s replenishment target of RM500mil.