Earnings turnaround expected for MHB in FY19

This article first appeared in The Edge Financial Daily, on February 15, 2019.
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Malaysia Marine and Heavy Engineering Holdings Bhd
(Feb 14, 66 sen)
Maintain buy with a lower target price of 76 sen:
Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) reported a core loss for financial year 2018 (FY18) of RM127 million (FY17: RM54 million profit). This was higher than our and consensus full-year net loss forecasts of RM89.3 million and RM90.6 million respectively.

The shortfall versus our expectations was underpinned by a lack of lumpy investment tax allowance recognition seen in prior years and a delay in order recovery for the marine segment.

MHB’s current outstanding order book amounts to RM826 million (4Q17: RM1.27 billion, 3Q18: RM932 million). In FY18, the group secured RM144 million worth of new contracts.

We tweak our FY19/FY20 order book replenishment assumptions to RM1 billion/RM500 million (from RM934 million/RM934 million). As a result, we revise our FY19/FY20 forecasts to RM12 million/RM28 million (from RM6.4 million/RM33.6 million).

We expect earnings turnaround in FY19, underpinned by improved earnings recognition from Bokor CPP and new offshore projects secured in 4Q18. Additionally, recovery of marine orders on the back of IMO2020 shipping regulations is expected to kick in next year. — TA Securities, Feb 14