MMHE plans to expand into new territories

TA Securities believes that MMHE's FY22’s losses will likely narrow vis-à-vis FY21.

PETALING JAYA: It is going to be another challenging year for Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) as the rise in the Omicron variant may hamper oil demand recovery.

Following its losses in the financial year 2021 (FY21), due to additional cost for ongoing projects, analysts have revised downwards their earnings estimate for FY22-FY23.

MIDF Research has also downgraded the stock to a “neutral”, with a revised target price of 44 sen per share, while TA Securities maintains a “sell” call on the counter with a 32-sen target price.

MMHE reported a huge loss of RM107.8mil in the fourth quarter ended Dec 31, 2021 (Q4 of FY21) from a deficit of RM23.9mil in Q3 of FY21 and RM8.3mil in Q4 of FY20.

For FY21, the group reported a cumulative net loss of RM270.4mil, which was an increase by 31.9% year-on-year from a deficit of RM396.8mil in FY20.

On a positive note, TA Securities believes that FY22’s losses will likely narrow vis-à-vis FY21.

The research firm said chunky pre-emptive Covid-19 cost provisions on its Kasawari gas development project may imply a higher margin for error in terms of project execution, while the potential re-opening of international maritime borders may translate to earnings recovery for the marine segment.

“Despite this, we believe the group is not out of the woods yet due to order book replenishment risks,” it said in a note to clients yesterday.

TA Securities noted that there was an uptick in marine orders in Q4 of FY21.

“Accordingly, this was reflected in segmental revenue expansion of 32% quarter-on-quarter (q-o-q).

“Management attributes this to easing Covid-19 restrictions.

“However, segmental earnings before interest and taxes losses widened q-o-q because revenues were not sufficient to cover overheads,” it added.

Meanwhile, MIDF Research said that despite the market sentiment on Omicron gradually diminishing over its low fatality rate, its higher transmissible nature has cast uncertainty on the pandemic’s long-term effects, most notably on the raw material supply chain and prices.

Additionally, the Northern hemisphere is expected to face a prolonged winter in 2022 and 2023, hence liquefied natural gas (LNG) demand will continue to be robust despite rising gas prices.

This will contribute to LNG vessels postponing dry-docking in the shipyard, creating tight competition until the end of the season, it said.

“These factors will affect the group’s prospects in the near term on both its business operations, and will continue to show in early 2022.

“However, MMHE is in the plans of expanding into new territories and new segments. This could see it replenishing its order book, in tandem with cost control and timely completion of ongoing projects,” it noted.

The research firm believes that these plans could assist the group to mitigate its losses going into FY22.

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