• Maintain NEUTRAL and TP of MYR0.42, 0% upside. Malaysia Marine & Heavy Engineering’s results met expectations, as there were no cost provisions incurred – given that ongoing projects are on track. We are positive on MMHE’s outlook, following the lifting of border restrictions in April. This will make it attractive for ship-owners to send their vessels for repairs, as foreign technical experts will be able to enter the group’s yard to conduct marine repair works more easily. However, we still remain cautious on the prospect of additional cost provisions being recognised in FY22.

• Results within expectations. Its 1Q22 core net loss of MYR6.6m is in line, as we expect MMHE to turn around in the upcoming quarters. No dividend was declared, as expected.

• Results review. MMHE recorded a 3% QoQ decline in revenue, no thanks to lower contributions from the marine segment (-23% QoQ) as a result of seasonally fewer dry docking activities. This was partially offset by higher project billing from heavy engineering division (+1% QoQ). Nevertheless, core net losses narrowed by 94% QoQ to MYR6.6m with the absence of additional cost provisions for ongoing heavy engineering projects.

• Outlook. MMHE’s orderbook decreased by 14% QoQ to MYR1.9bn. Current projects on hand include Kasawari (67.2% completed) and Jerun (27.3% completed). The orderbook also includes the new front-end engineering design carbon capture and storage Kasawari project that was awarded in 1Q22. The project commenced back in Feb 2022 and is expected to be completed within 7-8 months. The company’s tenderbook is currently worth c.MYR18-19bn as of Mar 2022. We should also expect revenue from the marine segment to pick up in the coming quarters, as the group’s marine repair slots have been fully booked up until July, following easing of border restrictions of countries such as Japan where nationals are allowed to travel to Malaysia starting 1 Apr. Note that the current utilisation rates for DD1, DD2 and DD3 are at 68%, 60% and 76%.

• Maintain NEUTRAL. We make no changes to our earnings estimates and TP of MYR0.42, which is pegged to 0.4x FY23F P/BV (-0.5SD from the 5- year mean). Our TP takes into account a 2% premium, based on MMHE’s 3.1 ESG evaluation score. Although we believe MMHE’s marine segment will see a gradual recovery, possible cost provisions remain a cause for concern. Even so, MMHE’s balance sheet remains strong, with a net cash position of MYR492.5m (0.31 per share) as of 1Q22.

Source: RHB Research - 23 May 2022