We deem MMHE’s 1Q22 core net loss of -RM6.7m (QoQ: -RM106.6m, YoY: -RM106.0m) to be within ours and consensus full-year forecasts of -RM56.1m and RM5.8m respectively. While we believe that FY22 would be a better year for MMHE (vs. a low base in FY21), we believe that the group has yet to turn the corner and will require more consistent job replenishments and increased work activity to breakeven. We cease coverage on MMHE due to reallocation of internal resources and lack of investor interest on the company. Our previous SELL recommendation and TP of RM0.35 (based on 0.3x P/B on MMHE should no longer be used as a reference point going forward.

Deemed in-line. We deem MMHE’s 1Q22 core net loss of -RM6.7m (QoQ: -RM106.6m, YoY: -RM106.0m) to be within ours and consensus full-year forecasts of -RM56.1m and RM5.8m respectively. We have adjusted the group’s 1Q22 profits for RM9.4m on net reversal of impairment loss on trade receivables.

QoQ. MMHE recorded a lower core net loss of -RM6.7m (from -RM106.6m in 4Q21). This was because the group was impacted by additional cost provisions for its Heavy Engineering segment’s on-going projects (which we believe to be its Kasawari and Jerun projects) in 4Q21.

YoY. MMHE recorded a lower core net loss of -RM6.7m (from -RM106.0m in 1Q21). We believe that this is due to: (i) improved performance from its Marine segment as a result of higher dry-docking activities throughout the quarter; and (ii) higher job completion for its Heavy Engineering segment’s on-going projects (which we believe to be its Kasawari and Jerun EPCIC).

Going green. MMHE has installed an 8.3MWp 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 RM1.9bn as of end-March 2022. The group has a tenderbook of about RM18-19bn as at March 2022. 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 high orderbook backlog.

Forecast. Unchanged. While we think the group’s performance should improve in FY22, we believe that that the group will require more consistent job replenishments and increased work activity to breakeven.

Cease coverage. We cease coverage on MMHE, due to reallocation of internal resources and lack of investor interest on the company. Our previous SELL recommendation and TP of RM0.35 (based on 0.3x FY21F P/B), which is at a 30% discount to its 5-year historical mean P/B on MMHE should no longer be used as a reference going forward.

Source: Hong Leong Investment Bank Research - 23 May 2022