MMHE's Dry Dock at its yard in Pasir Gudang Johor
KUALA LUMPUR: Maybank IB Research has downgraded its call on MMHE to Sell as it thinks the core earnings of RM29mil recorded in 1Q16 is unlikely sustainable over the next few quarters.
It said in a note on Thursday that the majority of MMHE’s RM1bil order backlog will be exhausted by end-2016. Also, replenishment of new works will be sluggish.
Further more, awards for most of its RM2.8bil tenders will only be realised from 2017.
“For this, we cut our 2016-2017 profit forecasts by 16%-42%. Valuations are expensive, at a 39% premium to our revised 90 sen target price (-8%), based on a 1x EV/order backlog peg,” Maybank IB said.
MMHE’s headline net loss of RM8mil in 1Q16 comprised RM37mil in unrealised forex loss on receivables. Excluding that, core net profit was RM29mil on lower revenue, which was within the research house’s expectations.
Operationally, the marine business was the main earnings driver. Revenue rose 14% year-on-year but EBIT was relatively unchanged year-on-year at RM15mil on weaker margins.
The offshore division saw a 93% year-on-year fall in core EBIT, on a 78% decline in revenue, due to lower works recognition. Works on SK316, TLP Malikai (~20% of total backlog) were not reflected in 1Q16.
The 25% rise in share price year to-date reflects in part speculation of a privatisation exercise. However, the weaker fundamental outlook and demanding valuations offer an opportunity to Sell into strength, added Maybank IB.
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