• Overview. Malaysia Marine Heavy Engineering Berhad (MMHE) recorded a headline PATAMI of RM40.6mn in 9M22 driven by (i)  higher marine repair and drydocking activities thanks to full border reopening and marine yard disclosure in China, and (ii) reversal of impairment loss on trade receivables stemming from recovery in doubtful debts amounting to RM17.7mn. On quarterly basis, core profit grew by 18.7% to RM9.4mn mainly due to higher finance income. Segmental-wise, marine repair segment (MBU) remains the key earnings contributor to the group with PBT of RM17mn (see  Table 2).

• Key highlights. Orderbook rose to RM2.2bn (2Q22: RM1.7bn) following new contract award from Sarawak Shell Bhd to undertake  EPC services for the Rosmari-Marjoram gas project.

• Against estimates: Inline. The company achieved EBITDA of RM67mn  in 9M22 which is in line with our estimate or at 72% of our FY22F  forecast. This is better than negative EBITDA of RM11mn recorded in  9M21 thanks to the turnaround in MBU segment.

• Balance sheet. The company’s financial position remained sturdy with net cash balance of RM518mn or RM0.32/share as at end 3Q22.

• Outlook. MBU segment is expected to continue delivering steady profit to the company through recurring marine repair and  drydocking activities. Meanwhile, we expect heavy engineering  (HEU) segment to continue replenish its orderbook with potential contract award of PTTEP’s Lang Lebah project and Kasawari Phase 2.  MMHE’s tenderbook currently stands at RM15bn.

• Our call. Reiterate our 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 - 10 Nov 2022