The Gumusut-Kakap semi-submersible floating production system (FPS) -- Asia
KUALA LUMPUR: Maybank Investment Bank Research has upgraded Malaysia Marine Heavy Engineering (MMHE) to a Buy ahead of a recovery in order backlog.
It said on Thursday MMHE is more solid, financially and operationally now versus a year ago.
“Valuations are near their historical low from a price-to-book value (PBV) perspective and lag behind regional peers that have re-rated, on rising oil price/ sentiment/ activity,” it said.
Maybank Research said its new TP of RM1 (+25sen) is based on a 0.9x enterprise value (EV)/ order backlog (versus 0.5 times PBV previously) to reflect the improving outlook, and offers a 22% upside,” it said.
Commenting on the fourth quarter results (Q4FY17), it said the surprise net profit of RM48mil included a RM94mil gain, largely comprising substantial variation orders (RM70mil).
Excluding that, MMHE reported core net loss of RM46mil, bringing its core loss to RM61mil in FY17. The heavy engineering operations reported higher on-quarter activities.
Conversely, its marine operations reported lower revenue/ EBIT (-12%/ -29%) on lower volume/ value of marine repair works. Financially, its cash balance improved 10% on-quarter to RM675mil @ 42sen a share.
MMHE reported positive free cashflow of RM10mil and declared an interim DPS of 3 sen, a positive surprise.
“The weak FY18 is well-flagged, on a RM1.3bil order backlog (one-year visibility). Financially, MMHE is on a firmer footing, from a cashflow/opex management perspective.
“Operationally, we expect MMHE’s job wins momentum to improve this FY, on improving sentiment/ activities. It has started tendering for jobs beyond the domestic market, a positive aspect, in terms of competitiveness. We expect MMHE to win RM2bil worth of works in FY18 (vs. RM1.1bil in FY17).
“Our valuation is based on 0.9 times EV/ backlog, conservatively premised on one standard deviation and five-year order backlog average of RM1.1bil. Valuations are undemanding and at a historical low, from a PBV perspective (0.5 times). Its regional peers have re-rated, making MMHE an interesting laggard play,” it said.
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