KUALA LUMPUR (Nov 8): Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) incurred a net loss of RM105.21 million for the third quarter ended Sept 30, 2023 (3QFY2023), its second straight quarterly loss amid cost escalation in existing projects, and has warned that its heavy engineering segment and marine business will remain challenging.

In the corresponding period last year (3QFY2022), the group made a net profit of RM15.95 million, it said in a filing with the local stock exchange on Wednesday.

MHB — 66.5%-owned by MISC Bhd, the shipping arm of state-owned oil company Petroliam Nasional Bhd (Petronas) — attributed the loss-making performance to additional cost provisions as a result of revised schedule and price escalation impact on ongoing projects in its heavy engineering division.

“The revised schedule has caused the extension of delivery dates of the ongoing projects, which was necessary to cater for the delayed onshore works,” the group said. “In addition, the weakening of Malaysian ringgit against US dollar had impacted the hedging of receivables for a project,” it said.

The net loss was inspite of MHB recording 56% growth in its revenue for 3QFY2023 to RM638.47 million, from RM409.23 million a year ago.

Cumulatively, for the first nine-month period of the year (9MFY2023), MHB incurred a net loss of RM490.37 million versus a net profit of RM40.63 million in the previous corresponding period, despite revenue grew 78% to RM2.19 billion, from RM1.23 billion over the same period.

Going forward on project execution, MHB said its heavy engineering segment continues to face challenges in executing some of its ongoing projects within the original budgeted margins, due to the impact of raw material price escalations and global supply chain disruption.

“These projects were awarded on a lump sum EPCIC (engineering, procurement, construction, installation, and commissioning) basis by clients a few years ago. The group will continue to pursue the recovery of these inflationary and schedule impact from clients,” it said.

Commenting on the group’s outlook, outgoing MHB managing director and chief executive officer Pandai Othman said management will improve contracting strategies with clients going forward, through “alliance concept or cost-plus basis where possible, to mitigate the risks of global inflation for future projects”.

“Notwithstanding the major setbacks, we remain committed to deliver all projects that meet our clients’ requirements. We are also committed to collaborate with clients, subcontractors and vendors in recovering the additional costs,” he said.

Pandai said demand for energy shipment is expected to rise, particularly in the Far East countries and Europe, in the upcoming winter.

“Therefore, demand for dry-docking activities is likely to be slower. This could potentially lead to a decrease in market share, as vessel owners prepare for a surge in seaborne trade requirements for the remainder of the year.

“Furthermore, competition among shipyards is anticipated to remain stiff. As such, we expect the marine business to remain challenging,” he said.

Pandai also said that MHB will continue to explore opportunities in both domestic and international markets, with increased emphasis on decarbonisation and renewable energy.

The 52-year-old, who was appointed to the post in October 2020, will finish his secondment in MHB by the end of this month, and he will be succeeded by Mohd Nazir Mohd Nor in December.

Shares of MHB were trading 2.5 sen or 4.7% lower at 50.5 sen at 3pm on Wednesday, giving it a market capitalisation of RM808.00 million.