RHB Investment Bank (RHB) lowered Malaysia Marine & Heavy Engineering Bhd’s (MHB) target price (TP) and earnings forecasts on account of ongoing cost provisions but is still optimistic of its outlook.
“We lower our FY24 and FY25 forecasts by 5.2 and 10.4% respectively on account of ongoing cost provisions, as well as introducing FY26 earnings.
“Consequently, we arrive at a new RM0.57 TP from RM0.60 as the group’s book value per share falls to RM0.83 from RM1.04 given its accumulated losses,” it said in its Malaysia Results Review today (Feb 15).
Nonetheless, the research house maintained its BUY call and pegged the TP to 0.7x price to book value ration P/BV to FY24F (+1.5SD from its 5-year mean) and includes a 4% discount for its 2.8 ESG score, below the country median.
“This is given that the turnaround quarter and robust orderbook – a testament to the strong sector outlook especially as MMHE is now in the renewable energy space, opening more job opportunities.
“Additionally, MHB has turned into the black following the recognition of cost recovery claims. Going forward, we believe its strong pipeline coupled with ongoing efforts of its recovery claims, will ensure profitability,” it said.
The key risks of its call include slowdown on replenishments, higher-than-expected material costs, and labour shortages.
RHB IB said the energy and marine solutions provider’s results came below its and street’s expectations as the group is still incurring additional cost provisions for an ongoing project.
“It recorded core net loss of RM490.1 million against ours and consensus’ full-year forecasts of RM147.9 million and RM132.3 million losses, even though revenue doubled year-on-year (YoY) to RM3.3 billion from RM1.7 billion.
“The revenue increase can be attributed to higher project billings from the heavy engineering (HE) division. For 4Q23, the group turned
profitable with a core net profit of RM9.4 million as the HE segment recorded an earnings before interest and taxes (EBIT) of RM7.4 million
“It also incurred cost provisions this quarter – offset by the reversal of provisions from completed projects.”
However, the research house said the marine segment’s operating profit declined 54% quarter-on-quarter (QoQ) to RM2 million from RM4.4 million due to lower margin jobs amid increasing competition from China.
As of 4Q23, MHB is back to its net cash position of RM190 million or RM0.12 per share and its orderbook stands at RM6.3 billion, an increase of 10% quarter-on-quarter (QoQ), as the group secured an offshore windfarm project which provides visibility up to FY27.
“However, project execution of its orderbook needs to be monitored given its recurring cost provisions. Its tenderbook stands at
RM6 to RM7 billion, with a 50:50 split between domestic and international jobs.
“Moving forward, the group is looking to balance its portfolio between oil and gas and renewable energy opportunities.
“For the marine business, we expect to see softer quarters ahead from stiff competition amid the reopening of China’s yard. Current utilisation for dry docks are guided at 50 to 80%,” it added.
