MMHE faces risk of lower order book replenishment


KUALA LUMPUR: It may be time for investors to lock in their gains following the 32% surge in the share price of Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) over the past one month.

Affin Hwang Capital research downgraded the stock to a hold on valuation grounds as its market capitalisation has since risen above its net cash value, although net cash still makes up 75% of the market cap. The research house kept its target price of 45 sen on the stock.

For the present, the research house is anticipating the risk of a slower roll-out of new contracts due to the prolonged low oil price environment and a potential capex cut by Petronas, which could lead to lower order book replenishment.

Petronas’ Activity Outlook had previously projected that the number of wellhead platform structures to be rolled out would increase from five to nine units in 2019 to 10 to 13 units in 2020.

However, Affin Hwang noted that MMHE's order book of RM3bil should allow it to be self-sustaioning for the next three to four years.

The group's marine segment is also expected to support earnings although Affin Hwang forecasts a 7% decline in revenue in 2020 as global demand weakens, before rebounding to 13% growth in 2021.

"The new dry dock 3, which will increase its current capacity by 68%, is targeted to be completed and commissioned by 3Q20, and would allow MMHE to cater to larger vessels," said Affin Hwang.
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