MMHE's Dry Dock at its yard in Pasir Gudang Johor
KUALA LUMPUR: Malaysian Rating Corporation Bhd has affirmed its AA-IS rating on Malaysia Marine and Heavy Engineering Holdings Bhd
’s (MMHE) RM1bil Sukuk Murabahah programme.
It said on Wednesday the outlook was maintained at negative due to MHME’s weakening profitability metrics due to higher impairment charges and lower contribution from its key heavy engineering unit (HEU) arising from reduced contract flow.
“These factors notwithstanding, MMHEB’s standalone rating is supported by its strong liquidity position and very low borrowings amounting to RM20mil under the rated sukuk programme.
“MMHE’s affirmed rating incorporates a one-notch rating uplift, premised on its status as a member of the PetroliamNasional Bhd (Petronas) group (AAA/Stable), which remains the company’s main source of contracts,” it said.
MARC pointed out MMHE’s contract order book had remained historically low at RM1.1bil as at end-2016, underscoring the difficult environment for upstream players in the oil and gas (O&G) sector.
“Its current order book size, which includes contracts worth RM962mil secured in 2016, should increase in the near term on expectations that it is likely to secure additional contracts from its sizeable tender book of RM4.4bil.
“The recent contracts awarded are, however, relatively smaller in value with shorter tenures,” it said.
MARC also noted that MMHE had increased its focus on expanding the ship repairing business under its marine business unit (MBU) segment to counter the weak prospects in offshore engineering activities.
In 2016, MMHE completed 54 vessel repair assignments in 2016 and “expects to increase this number in 2017”.
MARC also noted that MMHE was in the midst of securing board approval to construct a third dry dock costing RM500mil to boost its MBU earnings over the medium term.
As for capital expenditure, MARC said it had remained subdued in recent years, falling to RM122.2mil in 2016 from RM152.2mil in 2015.
Meanwhile, MMHE had also reduced the pace of its yard optimisation programme by spending only RM56mil in 2016, mainly for the Goliath crane 1 and centralising its piping workshop and warehouse.
For unaudited 2016, MMHE's consolidated revenue fell 51.7% to RM1.191bil and a pre-tax loss of RM135mil (2015: pre-tax profit of RM22.5mil).
The loss was due to a one-off impairment charge of RM140.5mil. If the impairment charge was excluded, MMHE would have recorded a marginal pre-tax profit of RM5.5mil.
However, MMHE's cash flow from operations was negative RM106.5mil due mainly to the timing of collection following project payment milestones.
Hence, MMHE’s cash balance fell to RM671.1mil at end-2016 from RM860.2mil a year ago.
“Given its total borrowings of RM20mil against shareholders’ funds of RM2.6bil as at end-2106, MMHE has significant headroom to raise external funding for working capital requirements.
“The standalone rating would be lowered if MMHE’s performance continues to weaken such that its standalone credit profile falls below the current rating band.
“Conversely, the negative rating outlook will be revised to stable if MMHE is able to sustain a meaningful order book replenishment that would reverse its declining revenue and earnings trend,” it said.
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