This article first appeared in The Edge Financial Daily on April 30, 2019

Malaysia Marine and Heavy Engineering Holdings Bhd
(April 29, 77 sen)
Maintain neutral with a higher target price of 73 sen: Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) suffered its fifth consecutive net loss of  RM29.4 million in the first quarter of financial year 2019 (1QFY19) attributable mainly to the underperformance of its marine segment. Furthermore, its 1QFY19 revenue was lower by 7.9% year-on-year attributable to lower revenue recognition from the heavy engineering segment during the quarter.

For FY19, we reiterate that it will continue to be a challenging period for MHB, which is predominantly due to the timing differences in revenue and profit recognition between tail-end projects and new projects. The large portion of its order book consists of the RM1 billion Bokor central processing platform (CPP) job where the major portion of the works will happen only in FY19. The revenue and earnings for the Bokor CPP project are slated to only be recognised at the later stage of the project.

However, its marine segment could potentially benefit from the increase in marine repair activities in the coming year due to the impending compliance with the International Maritime Organisation fuel sulphur cap ruling by January 2020 — which we opine could potentially drive dry docking activities at both its dry docks.

We have reduced our FY19 earnings estimate to RM53.4 million (from RM60 million previously) as we take into account persistent challenging operating environment which would result in compressed profit margins.

The company’s current order book as of March stands at RM864 million (from RM785 million previously in December 2018). As for the marine segment, an estimated RM400 million worth of works are expected to be executed in FY19. — MIDF Research, April 29