• Overview. Malaysia Marine Heavy Engineering Berhad (MMHE) achieved a core profit of RM8mn in 2Q22 driven by strong demand for marine repair and drydocking activities thanks to full border reopening and marine yard disclosure in China. Marine segment (MBU) revenue jumped by 53% QoQ to RM90.7mn which more than offset an 8% decline in revenue from heavy engineering segment (HEU) at RM329.9mn. For 1HFY22, the company recorded a headline PATAMI of RM25mn on the back of 27% increase in revenue to RM818m.

• Key highlights. Orderbook remains strong at RM1.7bn (1Q22: RM1.9bn) with Kasawari and Jerun EPCIC represent the large chunk of the orderbook.

• Against estimates: Inline. 1HFY22 EBITDA of RM40mn made up 43% of our FY22F forecast. This is within our estimate given the expected recovery of MBU segment in 2H22.

• Balance sheet. The company’s financial position remain sturdy with net cash balance of RM601mn or RM0.38/share.

• Outlook. Despite losing its bid for the Shell’s Crux project in Australia (estimated to be valued at RM1.5bn), its tenderbook remains robust given the current value of RM18bn. Locally, the company remains as the preferred bidder for the Shell’s Rosmary & Marjoram and PTTEP’s Lang Lebah projects. These projects, valued at RM1.5bn, may be awarded within the next 12 months. To recap, our forecasts are based on HEU’s annual orderbook replenishment assumption of RM1bn (versus YTD RM22mn).

• Our call. Reiterate a BUY call on MMHE with unchanged TP of RM0.65. This implies 0.5x FY22F P/B (Table 4). Our Buy recommendation is premised on (i) a turnaround in marine segment powered by full borders reopening and (ii) potential new project awards in coming quarters that could push its stock price higher.

Source: BIMB Securities Research - 18 Aug 2022