This article first appeared in The Edge Financial Daily on June 6, 2018

KUALA LUMPUR: TH Heavy Engineering Bhd will undergo a kitchen-sinking exercise so it can start with a clean slate and exit the Practice Note 17 (PN17) status by the first quarter of 2019 (1Q19).

Its chief executive officer (CEO) Suhaimi Badrul Jamil said the group is now working on submitting its regularisation plan to Bursa Malaysia by the Oct 26 deadline.

“We’ll have to impair a lot of things, mainly [our] floating production storage and offloading (FPSO) units. There is a fair bit of kitchen-sinking that needs to be done in order to clean up our balance sheet and hopefully by then we will return to the black,” he told reporters after the group’s annual general meeting yesterday.

Suhaimi said for one, the group seeks to reduce its debt owed to creditors to RM65 million from over RM900 million by using the proceeds from the novation contract for the Layang FPSO facility amounting to RM374 million from Yinson Holdings Bhd.

The project was originally awarded to TH Heavy by JX Nippon Oil & Gas Exploration (Malaysia) Ltd on Nov 27, 2014. TH Heavy, however, was unable to complete the project due to financial distress following the then downturn in oil prices.

On April 28 last year, TH Heavy was classified as a PN17 company after its auditors had expressed a disclaimer of opinion on the going concern assumption in the audited financial statements for the financial year ended Dec 31, 2016 (FY16).

TH Heavy narrowed its net loss to RM14.75 million in the first quarter ended March 31, 2018 (1QFY18) from RM21.18 million a year ago. However, quarterly revenue fell 78.4% to RM186,000 compared with RM2.25 million in 1QFY17.

The group is optimistic it will return to profit in FY18 following completion of its impairment as it will benefit from its offshore patrol vessel (OPV) contract, which is valued at RM738.9 million.

“With the OPV [contract] on hand, we should be capable to return to the black,” Suhaimi said, adding that the group must achieve two consecutive quarters of sustained profitability in order to exit PN17 status.

“We have not recognised revenue [from the OPV contract] for 1QFY18, but we would see a big boost in our revenue coming from this contract from 3QFY18 onwards,” he added.

In January last year, TH Heavy and Destini Bhd formed a joint-venture (JV) company called THHE Destini Sdn Bhd. TH Heavy holds a 49% stake in the JV, which secured a RM738.9 million contract for the supply of three OPVs to the Malaysian Maritime Enforcement Agency.

Suhaimi said going forward, the group is looking at jobs related to the OPV and ship maintenance and repair works from various agencies in order to increase its current order book.

The group is currently tendering for between RM10 million and RM20 million worth of projects for crane and manufacturing works.