• MMHE narrowed its core loss to RM4.7m in 4Q18 (3Q18: RM19m) supported by higher revenue from Bokor CPP project.

• Overall, MMHE’s core loss of RM116m in FY18 (FY17: core profit of RM47m) exceeds ours and consensus’ estimates at 127% and 148% respectively.

• We expect a turnaround in 2019 as more profits from Bokor CPP project are recognised while LNG drydocking activities pick up ahead of IMO 2020 new clean fuel regulation.

• Maintain BUY with RM0.83 TP. We think its strong balance sheet with net cash balance worth RM0.37sen/share will provide stability while awaiting market recovery.

Narrower loss on Bokor CPP fabrication project

After adjusting out exceptional items including impairment of trade receivables worth RM17.2m and PPE write-off charge of RM3.6m, MMHE narrowed its core loss to RM5m (3Q18: core loss of RM19m) led by higher revenue from Bokor CPP projects. The Bokor CPP project progressed ahead of its timeline at 37% completion, leading to higher HEU segment revenue by 26% to RM224m.

Temporary blip in MBU segment

Overall, MMHE recorded core loss of RM115.6m in 2018 (against core profit of RM46.9m in 2017) which exceeds ours and consensus’ estimates at 127% and 148% respectively. This was mainly due to temporary weakness in MBU following deferment of LNG drydocking activities (due to uncertainties in scrubber installation ahead of IMO 2020 clean fuel rule) and additional cost provision for conversion work made in previous quarters.

2019 outlook

We are optimistic that MMHE will be able to make a turnaround in 2019 underpinned by recovery in both HEU and MBU segment. The HEU earnings will be driven by profit recognition (which follows S curve method) from Bokor CPP project (which is expected to be completed by 2Q2020) while MBU segment will be driven by higher LNG drydocking activities.

Maintain BUY with unchanged TP of RM0.83

We maintain our BUY recommendation on MMHE with an unchanged SOP-based TP RM0.83. We think its strong balance sheet with net cash balance of RM583m (as at Dec 2018) or RM0.37sen/share would provide stability while awaiting market recovery.

Source: BIMB Securities Research - 14 Feb 2019