PETALING JAYA: Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), which saw losses of RM390.89mil in the first half of the year, is expected to return to the black next year, with the expansion of its profitable marine business segment.
According to BIMB Securities Research, MMHE’s marine business unit (MBU) segment, which undertakes marine repair and FPSO conversion projects has consistently been making profits over FY2013-2017.
The research house pointed out that MMHE is currently in the midst of expanding its marine business by building a new dry dock, known as Dry Dock 3 (DD3), that will provide recurring income for the group from 2021.
“The recurring income from the MBU segment provides MMHE with a cushion against the cyclicality of the heavy engineering unit (HEU) segment which relies heavily on O&G development projects, ” it said in a report yesterday.
The DD3, which cost about RM520mil, is 94% complete.
“We expect MMHE to secure more work orders, especially from third-party clients as DD3 will help to reduce bottlenecks at existing dry docks, ” BIMB said.
Currently, DD1 is reserved for MISC drydocking activities hence this leaves DD2 as virtually the sole dry dock for third party jobs.
MMHE is a loss-making oil and gas (O&G) service provider.
For the first half of this year, the company saw its losses widen to RM390.89mil compared to RM38.84mil a year earlier due to impairment caused by the Covid-19 impact.
“This is attributable to the collapse in demand for oil and energy, resulting in many O&G companies deferring their upstream projects and cutting their capital spend.
“Moreover, the impairment is deemed necessary in anticipation of a prolonged recovery in the industry resulting from these exceptional events, ” MMHE said during its result announcement for the first six-month of this year.
BIMB said the company’s fundamentals remain solid especially with the upcoming DD3, despite the poor sentiment over the stock due to low crude oil price.
“We remain in favour of the stock due to its earnings growth from expansion of marine repair business, its market leadership in the local offshore development project backed by Petronas’ stewardship, strong order book and strong balance sheet with a net cash position of RM432mil or 27 sen per share, ” it said.
Presently, MMHE has an order book of RM2.6bil and bidding for projects worth RM12.5bil.
“We think the potential earnings from DD3 in near future and its diversification away from oil projects have been largely overlooked, ” BIMB said.
For its heavy engineering unit (HEU) segment, BIMB said while there is scarcity in local projects, MMHE is continuing its effort to reduce dependency on Petronas’ jobs by pursuing foreign projects.
“Assuming the company can maintain its EBITDA margin of 4%-5%, we estimate that it needs a minimum annual revenue of RM1.2bil-RM1.5bbil to achieve break-even in the HEU segment, ” it said.
Currently, about 80% of MMHE’s tenders book is coming from foreign projects mainly comprising Saudi Aramco’s contract release purchase order (CRPO) tender bids for projects offshore Saudi as well as offshore wind farm projects in Taiwan.
BIMB said it expected MMHE to participate in Shell’s Crux gas field development project as a subcontractor to TechnipFMC.