MMHE’s current outstanding order book has increased marginally to RM864 million.
KUCHING: Malaysia Marine and Heavy Engineering Bhd (MMHE) suffered its fifth consecutive net loss of RM29.4 million in its first quarter of financial year 2019 (1QFY19) whilst its Bokor project offshore Sarawak continues to make up the bulk of its orderbook.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that MMHE’s revenue increased eight per cent on a year on year (y-o-y) basis, attributed to higher billing from its ongoing heavy engineering projects.
Nevertheless, core losses widened on the back of higher overhead costs incurred for contracts expected to be secured by the second half of 2019 (2H19).
“We deem the weak results to be in line with our and consensus forecasts on the expectation of a stronger 2H19 performance, supported by ongoing order book, new contracts replenishment and potential for variation orders,” it opined in a report.
“MMHE’s losses widened from RM8.2 million in 4Q18 to RM32.6 million as a result of higher unabsorbed overheads under the heavy engineering for potential contracts to be awarded towards the 2H19. We gather that the overheads are mostly related to manpower, but management was unable to disclose the quantum.”
The group’s current outstanding order book has increased marginally to RM864 million. Its Bokor central processing platform (CPP) project offshore Sarawak continues to make up the bulk of the order book with the project completion now at 49.4 per cent.
AffinHwang Capital said the construction of the Dry Dock 3 (DD3) has achieved 58.4 per cent completion, on track to commence operation in 2020.
In a separate note, Kenanga Investment Bank Bhd (Kenanga Research) expects MMHE to breakeven this year, believing an earnings recovery is likely this year.
This is driven by A recovery in its marine segment given heavy deferments in dry docking activities in the prior year, on top of the implementation of IMO2020, and back-loaded earnings recognition from the construction progress of CPP Bokor.
“Meanwhile, its tender-book stands at RM6.3 billion, increasing from last quarter’s RM5.5 billion, from bids in both local and overseas.
“However, we see some downside risk in the tender-book as the EPCIC for Kasawari CPP project, which we believe makes up the largest tender portion is currently being delayed amidst political and environmental issues.
“On the bright side, should the project receives the greenlight, MMHE is believed to the favourite against front-running contenders.”
On its regional project, MIDF Amanah Investment Bank Bhd (MIDF Research) saw that job awards have been actively given out in the Middle East region and in India while regions such as North Asia and South East Asia have seen rather muted job awards.
Despite oil prices making a recovery touching US$75 pr barrel recently, project sanctions and materialisation of work orders continue to remain slower than expected especially in the offshore fabrication segment which affects orderbook replenishments.
“In addition, under its long term agreement with Saudi Aramco and frame agreement with Petronas, we understand from management that bids for projects under these two agreements have begun and the company is expecting some jobs to be awarded during the year,” it said in its own notes.
“However, we are wary on the fact that not much visibility is available at this point in time on the potential jobs to be won and the orderbook replenishment going forward as to reduce its dependency on the Bokor CPP project.
“That said, the focus for the company moving forward now is on the expansion of the Marine segment with Dry Dock 3 which is expected to be completed on schedule in 2QFY20 – where it will mainly target repairs and conversions of LNG carriers.
“The company is also expanding into construction and fabrication of modular structure and renewable energy which is expected to broaden its revenue base going forward.”