• Overview. MMHE returned to black in 3Q20 with net profit of RM3.3m. This was driven by progress of construction projects as well as recovery in drydocking activities following the upliftment of entry ban on foreign vessels during MCO. It was aided by lower depreciation charges following asset impairment in 2Q20.

• Key highlights. Both Heavy Engineering Unit (HEU) and Marine Business Unit (MBU) posted recovery in revenue by more than 100% qoq. This was underpinned by completion of Bokor CPP and Bergading MRU construction projects as well as FSO Golden Star conversion works.

• Against estimates: Above. 9MFY20 core profit improved to RM8.7m from core loss of RM48m in 9MFY19. 9MFY20 core EBITDA of RM52m (>100% yoy) was above our estimate at 93%. We attribute this to better cost management.

• Earnings forecast. We raised our FY20F earnings forecast to RM9m from core loss of RM26m, following better performance in 3QFY20. There is also outstanding profit recognition remaining for completed projects (Bokor, Bergading and FSO Golden Star) from hook-up commissioning (HUC) activities in coming quarters.

• Outlook. Its current orderbook stands at RM2.5bn (2Q20: RM2.6bn). Tenderbook declined to RM12.2bn (2Q20: RM12.5bn) with international projects accounted 80% of the total tenderbook.

• Our call. Maintain BUY on MMHE with unchanged TP of RM0.42. Despite downcycle in oil and gas, we like the stock due to (i) marine expansion to reduce risk exposure to cyclical oil projects, (ii) its market leadership in local offshore development projects backed by Petronas’ stewardship; (iii) sizable orderbook of RM2.5bn; and (iv) strong balance sheet with net cash position of RM408m or RM0.26/share (as at Sep 2020).

Source: BIMB Securities Research - 27 Oct 2020