KUALA LUMPUR: The unexpected cost provisions made during Malaysia Marine and Heavy Engineering Bhd's (MMHE) second quarter is not expected to re-occur moving forward, which could lead the way to a strong earnings recovery.
The energy and marine solutions provider announced yesterday it had incurred a core net loss of RM385.5mil in the second quarter of the year.
In a research note, RHB Research said the performance was against its full-year profit estimate of RM38mil, and market's own profit projection of RM68mil.
"We now project a net loss, and do not expect a dividend payout this year," said the research firm.
The dismal performance was attributed to provisions made from the decision to defer the load-out of certain projects to do additional works onshore instead of offshore.
"Prior to fabrication load-out, MMHE is unable to claim any milestone payments from its clients, and hence needs to incur the cost," RHB explained.
RHB noted that despite the setback, MMHE is not expecting any further provisions and is looking to recover the costs in the coming quarters.
"We believe the cost recovery, as well as the coming quarters’ profits from the HE segment will partially offset 2Q23’s losses," said the research firm.
It added that MMHE's RM6.2bil orderbook will support the earnings recovery, while its tenderbook stands at RM5-6bil after converting a few jobs into its orderbook.
"MMHE is currently running at 80-90% capacity, and hence, will be selective with new jobs, looking for projects with reasonable profit margins," said RHB.
RHB now forecasts a loss of RM118.7mil in FY23 to account for the unexpected cost provisions and weaker marine segment contribution.
Reviewing its projections, the research house slashed FY24-25 forecast earnings by 10-16% on assumption of lower margins from the heavy engineering and marine divisions.
RHB maintained its "buy" call on MMHE with a new target price of 60 sen, down from 80 sen.
