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HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 27 Nov 2020, 11:01 AM

 

Malaysia Marine and Heavy Engineering Holdings - Better Performance Was Within Expectations

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3QFY20 core profit of RM1.7m (QoQ: -RM112.3m, YoY: -RM4.7m) and 9MFY20 core net loss of -RM107.8m (SPLY: -RM46.5m) came in within our (FY20f: - RM116.9m) but below consensus’ (FY20f: -RM80.2m) expectations. The better revenue and profit from both its engineering and marine segments were partly attributable to carried forward work orders from the yard closure in 2QFY20 as a result of MCO. We expect MMHE to fall back into red in 4QFY20 as revenue normalises. We maintain our HOLD rating with TP of RM0.30 pegged to 0.2x FY21 BVPS (-1.5SD from 5 year mean). We expect its marine and engineering segments to remain weak until FY21 based on current circumstances.

Results within expectations. 3QFY20 core net profit of RM1.7m (QoQ: -RM112.3m, YoY: -RM4.7m) and 9MFY20 core net loss of -RM107.8m (SPLY: -RM46.5m) came in within our (FY20f: -RM116.9m) but below consensus’ (FY20f: -RM80.2m) expectations as we expect MMHE to marginally fall back in the red in 4QFY20. No dividend was declared, as expected. We arrived at our core profit figure for 3QFY20 after adjusting for amortisation of right of use assets of RM2.4m, net unrealised loss on foreign exchange of RM1.3m, net income from scrap disposal of RM2.0m and net reversal of impairment loss on receivables of RM0.6m. The better revenue and core profit can be attributed to the postponement of works from 2QFY20 due to its yard closure when MCO was imposed.

QoQ. MMHE recorded a revenue of RM369.5m (+137.9% QoQ) and a core profit of RM1.7m (-RM112.3m), after adjusting for non-core items. The better results were partly attributable to works carried over from 2Q20 due to MCO.

YoY. Revenue increased by 45.3% YoY due to higher work orders carried over from 2QFY20; consequently earnings returned to black (RM1.7m vs -RM4.7m)

Operating segments. The engineering orderbook stands at healthy RM2.5bn as of 3QFY20 (off which c.70% can be attributed to the Kasawari EPCIC award), whilst MMHE’s tender book is at a solid RM12.3bn. Yard utilisation for the quarter stood at 65%. The better performance for both is engineering and marine segments are partly attributable to larger work orders carried forward from 2QFY20 due to MCO.

Outlook. We believe that the outlook for MMHE remains subdued at this juncture as the SOP implemented in its yards are still expected to eat into its margins and border restrictions are expected to continue to plague the company due to the resurgence of Covid-19 cases globally. The construction phase for the largest portion of its orderbook (Kasawari project) is only expected to begin in 2021 and earnings for the aforementioned project are only expected to be material in FY22. We expect Its financial position to remain weak in the foreseeable future as we expect cash balance to fall further when its days of payable outstanding normalises. Its YTD trade payables have increased by RM293.6m while its YTD trade receivables have increased by RM224.5m. However, its sizable debt drawdown facilities of about c.RM650m is expected to satisfy any working capital required for operations for a year. MMHE is expected to drawdown c.RM100m from its existing debt facilities in 4QFY20.

Forecast. No Changes to Forecast as the Results Were In-line With Expectations.

Maintain HOLD, TP: RM0.30. We maintain our TP of RM0.30 based on 0.2x FY21 BVPS, which is -1.5SD below its 5 year historical mean P/B. We believe that MMHE would remain weak operationally due to the Covid-19 pandemic despite its current net cash position of RM0.26 per share.

Source: Hong Leong Investment Bank Research - 28 Oct 2020

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