• Overview. MMHE suffered a huge headline loss of RM391m in 2Q20 as it was impacted by asset impairment and cost provision arising from Covid-19 pandemic with a combined value of RM390m. However, excluding these non-core items, it still managed to post a core PATAMI of RM2.5m.

• Key highlights. Both Heavy Engineering Unit (HEU) and Marine Business Unit (MBU) generated weaker revenue by 51%/64% qoq and 21%/65% yoy respectively. The HEU was affected by yard shutdown leading to slower construction progress, while the MBU saw drydocking activities halted amidst border restriction which prohibit vessels from coming into the yards.
   
• Against estimates: Below. 1HFY20 core profit of RM5.4m was below both our and consensus’ estimates at 15% and 24% respectively.
   
• Earnings forecast. We cut our FY20-22F earnings forecast by 10- 171% (Table 5) in anticipation of further delay in new contract award and higher operating costs to source for alternative resources. We now expect the company to turn into core loss of RM26m in FY20 (from core PATAMI of RM36m).
   
• Outlook. Its current orderbook stood at RM2.6bn (1Q20: RM2.7bn). Tenderbook declined to RM12.5bn (1Q20: RM17bn) as it lost some of its bids in the offshore windfarm fabrication project. Currently, international projects accounted 80% of the total tenderbook size.
   
• Our call. Maintain HOLD recommendation on the stock with lower SOP-based TP RM0.42 (from RM0.47) which implies 0.3x FY21F P/B (Table 6). We think its sizable orderbook and net cash balance of RM442m (as at 1Q20) or RM0.28/share, could provide stability while awaiting more work orders.

Source: BIMB Securities Research - 24 Jul 2020