3Q21 core net loss of -RM16.7m (QoQ: -RM25.3m, YoY: RM1.7m) and 9M21 core net loss of -RM148.0m came in wider than ours and consensus full-year net loss forecasts of -RM150.1m and -RM91.7m respectively due to: (i) lower than expected work activity and billings; and (ii) additional cost provisions recognised for on-going projects. Orderbook cover currently stands at 1.4x. We believe that the group will require more consistent job replenishments and increased work activity to reach its breakeven revenue. With that, we maintain our SELL recommendation with a TP of RM0.35 pegged to 0.3x FY21F P/B.

Missed again. 3Q21 core net loss of -RM16.7m (QoQ: -RM25.3m, YoY: RM1.7m) and 9M21 core net loss of -RM148.0m was wider than ours and consensus full-year net loss forecasts of -RM150.1m and -RM91.7m respectively due to: (i) lower than expected work activity; and (ii) additional cost provisions recognised for on-going projects. Our 9M21 core profit figure was adjusted mainly for an impairment loss of RM7.9m, which was recognised in 2Q21.

QoQ. MMHE recorded revenue of RM389.3m (+28.7% QoQ) and a narrowed core net loss of -RM16.7m (from -RM25.3m). The group attributed the improved performance to improved billings from an on-going project, which we believe to be the EPCIC Kasawari Gas Development Project. The progress of this particular project stood at 58.9% as at end-September 2021.

YoY. Revenue was up marginally YoY at RM389.3m (+5.4% YoY) due to improved billings from an on-going project, which we believe to be the EPCIC Kasawari Gas Development Project, but was mitigated by lower revenue from MMHE’s Marine segment due to reduced number of LPG repair and absence of conversion work caused by the prolonged border restrictions.

YTD. Core net loss widened to -RM148.0m from -RM107.8m in 9M21 due to additional cost provisions recognised for the group’s projects for the Heavy Engineering segment.

Going green. MMHE has installed an 8.3 MWp solar panel for its yards and it is expected to result in RM30m of cost savings over 20 years, in-line with its goals to reduce its carbon emissions.

Outlook. Current orderbook stands at RM2.5bn as of end-3Q21. This translates into an orderbook cover of 1.6x. The group has a tenderbook of about RM9.0bn as at September 2021. We remain apprehensive on the prospects of MMHE despite its recent Jerun CPP contract win as we believe that the group will require more consistent job replenishments and increased work activity to breakeven. Also, we do not discount the possibility of further cost overruns or delivery delays for its current projects despite its higher orderbook backlog.

Forecast. We now project wider net losses of -RM176.3m, -RM56.1m and -RM44.5m for FY21-23F respectively (from a net loss of -RM150.1m and profits of RM18.0 and RM25.1m previously).

Maintain SELL, TP: RM0.35. We maintain SELL with an unchanged TP of RM0.35 based on 0.3x FY21F BVPS, which is at a 30% discount to its 5-year historical mean P/B. We believe we would need to see more consistent job replenishments and increased work activity for MMHE in order for us to warrant a re-rating on our call.

Source: Hong Leong Investment Bank Research - 3 Nov 2021