• Maintain BUY with a higher MYR0.85 TP from MYR0.59, 20% upside and c.1% yield. Malaysia Marine & Heavy Engineering’s results exceeded our expectations with its first profitable year since 2017. We are positive on the group’s outlook given its robust orderbook which should provide exponential growth to its earnings. We believe MMHE is a beneficiary of the recovering oil & gas industry.

• MMHE’s FY22 results came above our expectations with a recorded core net profit of MYR9.8m - a turnaround from FY21’s net loss of MYR263.2m - attributable to the stronger marine segment with an EBIT of MYR61.6m (vs FY21’s -MYR49.4m) and the absence of lumpy costs provisions for the heavy engineering division. The company declared a 1.5 sen dividend given its first profitable year since 2017.

• Results review for 4Q22: MYR7.6m core net profit (+57% QoQ) was driven by its marine segment which recorded an operating profit of MYR22m (+30% QoQ). The segment recorded a revenue of MYR97.6m (+10% QoQ, +26% YoY) due to higher dry-docking activities. This was offset by the heavy engineering operating loss of MYR14.2m due to additional cost provisions recognised for on-going projects. The group is at a net cash position of MYR461.9m (MYR0.29 per share) as of 4Q22.

• Outlook. The Kasawari jacket loadout is currently in progress while the topside is at 75.5% completion and its loadout is expected in 1Q23. The Jerun project (53.4% completed) is scheduled for completion in 3Q24. MMHE’s orderbook as of 4Q22 stands at MYR6.3bn coming from its MYR4.9bn new order intake. Its tenderbook is worth MYR10-11bn with an 86:14 split between international and domestic jobs and c.60% of the bids are for non-oil & gas projects, predominantly in offshore wind. Recently, it has also started bidding for offshore substations. MMHE is in the midst of reactivating its east yard with the anticipation of more jobs coming in. For its marine side, we believe utilisation rate of its docks will remain high given the company’s new partnerships with Silverstream Technologies and Bureau Veritas Solutions to provide fuel saving solutions.

• Maintain BUY. We increase FY23F-24F earnings 10-32% on the account of higher replenishment assumptions as well as introduce FY25 forecast. Our forecast is on the conservative side compared to consensus although we do note, some brokers do not exclude impairment reversals which have skewed the average to be higher. We revise our FY23F P/B to 0.7x from 0.5x which is 1.5SD above its 5-year mean given its higher orderbook replenishment which is set to cover FY23-25, signalling a stronger outlook for the company. We maintain our P/BV valuation basis as MMHE’s 5-year P/E is still elevated at 100x, thus rendering comparison between forward P/E to be meaningless. We arrive at a new TP of MYR0.85 which is inclusive of a 2% ESG premium, based on MMHE’s 3.1 ESG score. Key risks include a slowdown in order replenishment, higher material costs, and labour shortages.

Source: RHB Research - 13 Feb 2023