Review

• Malaysia Marine and Heavy Engineering Holdings Bhd’s (MHB) 9MFY24 results aligned with our expectations, achieving 77% of our full-year forecast, while exceeding consensus estimates at 95% of their full-year forecast.

• YoY: 3QFY24 revenue surged by 42.0% YoY, driven by robust contributions from both the Heavy Engineering (+40.3% YoY) and Marine segments (+56.2% YoY). The Heavy Engineering segment's revenue growth stemmed primarily from increased contributions from ongoing projects. Segmental operating profit rose from a loss of -RM107.7mn to RM19.5mn, largely due to additional cost provisions resulting from price escalations on these projects. Meanwhile, the Marine segment's revenue increase was attributed to heightened activity in dry-docking and repair services, leading to an improvement in segmental operating profit from RM4.4mn to RM11.0mn. As a result, overall core net profit rebounded from -RM91.3mn to RM24.8mn.

• QoQ: Similarly, on a QoQ basis, revenue increased by 0.7%, supported by higher revenue contributions from the Marine segment (+17.6% QoQ) and a 0.3%-point improvement in its segmental operating profit margin. However, despite the revenue growth, core net profit declined by 24.8% QoQ, mainly due to the recognition of cost recovery claims in the Heavy Engineering segment in Q2.

Impact

• No change to earnings forecasts.

Outlook

• Engineering Segment: As of September 2024, MHB's secured order book stands at RM5.4bn, providing visibility and support for operations through 2028. The company is also targeting an increase in its Heavy Engineering tender book to approximately RM8-9bn (previously RM7-8bn), presenting additional earnings opportunities from this robust pipeline.

• Marine Segment: Investments by oil majors in upstream activities are anticipated to bolster prospects for the Marine segment, particularly in conversion projects. The segment is also focusing on broadening its customer base for LNG carriers (LNGC), in light of the growing market demand. Nonetheless, competitive pressures persist due to the emergence of new LNGC repair yards in neighbouring countries and China.

Valuation

• Reiterate Buy with an unchanged TP of RM0.61/share pegged to 0.65x CY25 P/B ratio with an ESG Premium of 3%.

Source: TA Research - 14 Nov 2024