RHB Research expects MHB’s marine division’s earnings to remain subdued for the next quarter before picking up in the fourth quarter of 2023.
PETALING JAYA: Malaysia Marine and Heavy Engineering Holdings Bhd
(MHB) is looking to secure renewable energy and decarbonisation-related contracts to sustain and grow its order book, says TA Research.
RHB Research, however, stated that as MHB is running at 80% to 90% capacity, the group will be more selective with new jobs and is looking for projects with reasonable profit margin.
MHB’s order book as of the second quarter of 2023 (2Q23) stands at RM6.2bil after recognising some orders for the quarter.
RHB Research expects MHB’s marine division’s earnings to remain subdued for the next quarter before picking up in the fourth quarter of 2023.
The research house said the current utilisation for dry dock 1, 2 and 3 are at 72%, 91% and 65%, respectively.
RHB Research also said MHB is looking at posting RM118.7mil losses in the financial year 2023 (FY23) to account for the unexpected cost provisions by its heavy engineering division and weaker marine segment contribution.
On a positive note, the research house expects stronger earnings recovery ahead, supported by its RM6.2bil order book, as the lumpy cost provisions are not anticipated to recur.
“We believe the cost recovery as well as the coming quarters’ profits from the heavy engineering segment will partially offset 2Q23’s losses,” said RHB Research.
It was noted that the cost provisions made by MHB in the quarter came from the decision to defer the load-out of certain projects to do additional works onshore instead of offshore, as it is more costly.
Prior to the load-out, MHB was unable to claim milestone payments from its clients, which then pushed the group to incur the costs.
MHB is now more optimistic and is not expecting any more provisions while looking to recover the costs in the upcoming quarters.
To mitigate future cost overrun during procurement, MHB plans to shift away from being a turnkey solution provider to other models.
MHB’s 2Q23 revenue rose to RM1.1bil, which doubled year-on-year, driven by higher progress made on ongoing projects in its heavy engineering segment.
This has more than offset the revenue decline in MHB’s marine segment, which dropped by 27.9% year-on-year.
On a quarterly basis, MHB’s revenue more than doubled quarter-on-quarter on the back of significant revenue growth in the heavy engineering segment.
However, the heavy engineering segment saw an operating loss of RM390mil due to lumpy cost provisions, resulting from the revised schedule for its ongoing projects, while its marine segment’s operating profit declined to RM3.3mil on lower revenue and diminishing margins.
MHB’s first-half core net loss of RM382.3mil came in below TA Research’s expectations as it previously forecast a core profit of RM90.3mil while consensus forecasts was for a RM68.4mil profit.
TA Research slashed its earnings forecasts for MHB to losses of RM82.4mil, RM74.4mil and RM95mil for FY23, FY24 and FY25, respectively, on the assumption the group will manage to recover about 70% of the additional cost provisions.
The forecast includes a higher overall cost assumption for the engineering segment as well as lower number of forecast vessel contracts secured.
RHB Research said MHB’s 2Q23 core net loss came well below the research house and consensus’ full-year estimates of RM38mil and RM68mil profit, respectively
“We now project a net loss and do not expect a dividend payout this year,” said RHB Research.
TA Research has a “hold” call on MHB with a lower target price (TP) of 51 sen per share, based on 11 times calendar year 2024 earnings per share.
RHB Research has maintained a “buy” call on the group with a TP of 60 sen per share.
