RHB Research said MMHE’s recent win of a RM1.2bil subcontract for an offshore wind project in the Netherlands has boosted its order book to RM6.3bil.
PETALING JAYA: Malaysia Marine and Heavy Engineering Bhd’s (MMHE) RM6.3bil order book is expected to offer earnings visibility up to the financial year ending Dec 31, 2027 (FY27), but analysts express concern about its recurring cost provisions.
These concerns stem from the fact that the company incurred losses in FY23, primarily attributed to escalating costs.
To note, MMHE posted a net loss of RM484.19mil in FY23 as compared to a net profit of RM67.77mil in FY22, although revenue rose to RM3.31bil in FY23 from RM1.65bil in the previous year.
In a report, RHB Research said MMHE’s recent win of a RM1.2bil subcontract for an offshore wind project in the Netherlands has boosted its order book to RM6.3bil, providing visibility up to FY27.
“However, project execution of its order book needs to be monitored given its recurring cost provisions,” it noted.
According to RHB Research, MMHE’s tender book stands between RM6bil and RM7bil, with a 50:50 split between domestic and international jobs. Moving forward, the research outfit said MMHE is looking to balance its portfolio between oil and gas and renewable energy (RE) opportunities.
Similarly, TA Research said MMHE is exploring opportunities to secure contracts in RE, particularly offshore wind and carbon capture and storage to sustain and expand its order book.
However, for MMHE’s engineering segment, TA Research expects cost provisions to be lower moving forward due to the group’s improved contracting strategies including alliance concept, reimbursable or cost-plus basis for newer projects.
Conversely, MIDF Research expects the high-cost environment to persist in FY24.
The research outfit foresees improvement in the oil and gas market, driven by consistently elevated oil prices amid the Organisation of the Petroleum Exporting Countries and its allies’ or Opec+ supply cuts and global economic growth.
MIDF Research, however, said this situation could potentially be mitigated if major oil players increase their upstream capital expenditure for 2024.
The research firm maintained its “neutral” rating for MMHE, factoring in the impact of provision costs incurred in ongoing heavy engineering projects.
RHB Research, on the other hand, has lowered its FY24 and FY25 forecasts by 5.2% and 10.4% respectively, on account of ongoing cost provisions. It maintained a “buy” recommendation on the stock with a new TP of 57 sen a share from 60 sen previously.
TA Research has maintained its “hold” call on MMHE and lowered its TP to 51 sen per share from 53 sen previously.
