Profit spiked more than 100%. Malaysia’s Marine & Heavy Engineering (MMHE) profit surged more than 100% YoY to RM27.1m in 4QFY22 from a loss of -RM107.8m in 4QFY21, and +70.2% QoQ from 3QFY22. For the full FY22, MMHE earned a total RM67.8m, up by more than 100% YoY from a loss of -RM270.4m in FY21, which came above MIDF Research’s one-year forecast by +14%. Meanwhile, revenue grew +3.6%yoy but declined -1.9%qoq to RM424m. For the full FY22, MMHE’s revenue totalled RM1.65b, up by +12.6% YoY.
Heavy Engineering. This segment reported a decline in revenue by -7.9% YoY but increased +2% QoQ to RM326.4m. Profit improved by +84.4% to a deficit of -RM14.2m, but declined more than 100% QoQ from RM1.4m in 3QFY22. For FY22, revenue rose +8% YoY to RM1.31b, while profit improved +95.8% YoY to a deficit of -RM8.7m. The increase in revenue was mainly attributed to higher progress of ongoing projects.
The segment posted lower operating loss as the impact of additional cost provisions recognised for ongoing projects had lessened. The improved performance for this segment was also contributed by the recovery of Covid-19 claims and reversal of cost provisions for post sail-away projects.
Marine. For this segment, revenue gained +25.8%yoy and +9.5%qoq to RM97.6m. Profit surged more than 100% YoY from a deficit of -RM17.7m in 3QFY22 and added +29.8% QoQ to RM22m. For FY22, revenue increased +35.1%yoy to RM336.9m, while profit surged >100%yoy to RM61.6m from a deficit of -RM49.4m in FY21.
Higher revenue was a result of higher dry-docking activities, since the reopening of borders in April CY22. Improvement for this segment was contributed by better margins and reversal of impairment loss on trade receivables as doubtful debts were recovered in FY22.
Balance sheet. MMHE’s total assets stands at RM3.36b in FY22. The total drops about RM32m as compared to FY21, mainly due to lower receivables from higher collection. However, this was offset by higher net cash generated from operating activities; repayment of principal of RM34.4m contributing to lower borrowings; and higher shareholders’ funds. The group’s balance sheet remained robust, with an estimated DER of 0.2x and NTA per share of RM1.11.
Orderbook update. As of December CY22, MMHE’s orderbook totalled up to RM6.29b – a rise from FY21 orderbook by RM4.12b – with 99.1% in Heavy Engineering and 0.9% in Marine. The group’s new order intake in Heavy Engineering totalled up to RM4.85b as of December CY22, which included the EPCIC and FEED for the Kasawari Carbon Capture & Storage (CCS) project awarded by PETRONAS Carigali in 1QFY22 and 4QFY22 respectively, as well as the EPC services for the Rosmari-Marjoram Gas Project that was awarded in 3QFY22 by Shell.
MHHE’s Heavy Engineering segment had submitted approximately RM10b to RM11b worth of tenders. The group had also completed repair and maintenance of 87 vessels of various types including 11 LNG carriers (LNGC) for its Marine segment.
Supported energy price presents more opportunities. Crude oil and natural gas prices are expected to continue being supported by China’s reopening of its economy with the relaxation of its zero-Covid policy as well as the ongoing Russian-Ukraine war, subsequently increase the demand for energy products and energy security.
Additionally, the growth in renewable energy and increasing decarbonisation efforts provided a great commercial opportunity to the group, particularly in its pursuit in its initiatives on offshore wind farm, which include the construction of the wind farm structure and substation platforms.
The group’s Marine segment is also continuously reaping the benefit of the lifted border restrictions as well as a demand for more upgrading and retrofitting jobs following the compliance with Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) imposed by the International Maritime Organisation (IMO) from 1 January 2023 onwards.
External risks remains but cautiously positive. Despite the robust outlook on heavy engineering subsector, the challenges remain to be, disruptions to demand and pricing due to a potential global economic recession; supply chain interruptions due to ongoing geopolitical tensions and high inflationary pressures. Meanwhile, the marine subsector faces possible manpower constraints that could affect the timely execution of its dry-docking operations; in addition to higher competition amongst shipyards after the recent lifting of China’s border restrictions. Nevertheless, remain cautiously positive for both of MMHE’s Heavy Engineering and Marine operations.
Dividend for FY22. MMHE announced its first interim dividend for FY22 since FY18, amounting to 1.5 sen per share.
Revised FY23-24 earnings forecast. In consideration of the group’s robust FY22 performance which came in above MIDF’s expectations, as well as positive prospects in the Heavy Engineering and Marine sectors, the research house has revised its FY23 and FY24 earnings estimates up by +9% and +2% respectively. As such, it revised its target price to RM0.81 (from RM0.61); pegging on a PER of 13.7x to a revised EPS23 of 5.9sen. The PER is based on the Heavy Engineering and Marine subsectors’ 5-year average PER.
MIDF has maintained BUY on MMHE with the revised target price of RM0.81. The research house continues to be positive with the group’s future prospects; more adeptly with its plans to reactivate its East Yard within this year.
Considering that MMHE is now in collaboration with Silverstream Technologies and Bureau Veritas Solutions – two of the most prominent firms with services and products for newbuild and retrofit vessels – in addition to its endeavours in offshore wind farms and carbon capture and storage (CCS), we believe its Heavy Engineering business will continue to strive in FY23.
The lifting of border restrictions and the near-ending of winter had also assisted in its Marine business, although competition among shipyards may pose a challenge. Nevertheless, the BUY rating for MMHE are due to: (i) robust balance sheet and healthy cash flow, (ii) strong orderbook backlog for current and future projects, (iii) continuous ventures into renewable energy solutions, and (iv) pursuit in fulfilling its ESG milestones.
