Malaysia Marine Heavy Engineering Berhad (MMHE) remained in  the black for the fifth consecutive quarters driven by the turnaround in marine repair (MBU) segment. The segment’s profitability has normalised from the COVID-19 impact thanks to full border reopening since 2Q22. The company’s core PATAMI of RM3mn or  5% of our FY23 forecast is commendable, as we expect an earnings respite from 2Q23 onwards. This is on the back of potential turnaround in heavy engineering (HEU) segment. The company is reactivating its East Yard to execute its large orderbook of RM7.2bn as well as to venture into RE offshore windfarm project. We maintain our BUY call on MMHE with unchanged TP RM0.94. We view recent stock price weakness as an opportunity to accumulate the stock.

Within expectation. The company achieved a core PATAMI of  RM3mn in 3M23 which made up 5% of our FY23F forecast. We deem this as within estimate in expectation of stronger activities from 2Q23  onwards.

• Dividend. The company paid a 1.5sen DPS in respect to FY22 on 24th March 2023 amounting to RM24mn. However, there is no dividend  declared during the quarter as expected.

• QoQ. Revenue rose 17% QoQ to RM496mn due to the  commencement of new heavy engineering projects including  Rosmari-Marjoram EPC and Kasawari CCS EPCIC projects which were awarded in October 2022 and November 2022 respectively.  However, core PBT declined 76% QoQ to RM3mn due to weaker  marine repair segment and lower finance income.

• YoY/YTD. Revenue rose 19% YoY due to the turnaround in marine  repair segment which benefitted from the full border reopening since  2Q22. This led the company to achieve positive core PATAMI for the  fourth consecutive quarter since 2Q22.

• Outlook. Orderbook rose by 15% QoQ to RM7.2bn from RM6.3bn following new contract award that is worth RM1.4bn from Carigali-PTTEPI Operating Company (CPOC). This will contribute to higher revenue and profit potentially in 2Q23. The company’s financial position remains sturdy with net cash balance of RM300mn or  RM0.20/share (as at end 1Q23) which allows the company to  continue bidding for new projects. Its tenderbook currently stands at  RM9-10bn.

• Forecast. No change to our earnings forecast.

• Our call. Reiterate a BUY call on MMHE with unchanged TP of RM0.94. This implies 0.8x FY23F P/B (Table 4). Our BUY recommendation is premised on the turnaround in heavy engineering segment. The reactivation of the East Yard will propel a re-rating catalyst on the stock.. .

Source: BIMB Securities Research - 19 May 2023