• Overview. On qoq basis, MMHE reduced its core loss to RM27m in 2Q21 driven by recovery in marine repair business as well as lower opex in the absence of cost provision estimated at RM50m in 1Q21. Revenue declined slightly by 12% qoq to RM302m due to lesser fabrication jobs in the yard following several project completions in previous quarters but this is partially offset by higher revenue from marine repair segment.

• Key highlights. The marine segment completed 3 LNG drydocking works (1Q21: 1 vessel) with higher average utilisation rate of 81%. The company also successfully sailed away the jacket and topsides of Kasawari WHP during the quarter as well as loaded out Bekok-BB jacket and topsides.

• Against estimates: Inline. 6MFY21 core loss of RM132m was within our expectation. We expect stronger performance in 2H21 on recovery in drydocking demand as well as new revenue contribution from Jerun project.

• Outlook. Its orderbook stood at RM2.7bn (1Q21: RM3bn). The company still has a large outstanding tenderbook worth RM8bn with foreign jobs making up 80% of it. We expect several local projects to be awarded by end of this year including Petronas’ FPSO Limbayong and Shell’s Timi WHP project.
  
  Our call. Stock price remained weak amidst operational challenge due to MCO particularly as the marine repair business was impacted by border restriction and strict SOP regulation, hindering the entrance of foreign vessels. Nonetheless, we remain optimistic on the company’s outlook amidst the potential upcycle in development projects following underinvestment in prior years. Reiterate BUY with unchanged SOP-derived TP of RM0.83 which implies 0.7x P/B FY21F.

Source: BIMB Securities Research - 2 Aug 2021