Maintain BUY and MYR0.85 TP
MMHE prioritises for: (i) a stronger orders pipeline (heavy engineering & marine services), (ii) the delivery of existing projects on time, on schedule and on budget, (iii) improvement on its cost management and
(iv) return to profitability this FY. We remain positive on MMHE – cash rich with undemanding valuations and a direct proxy play to PETRONAS’ domestic offshore fabrication activity. Our TP is unchanged, pegged to 0.8x EV/ order backlog (mean valuation) expectation of MYR1.2b.
Short-term challenges
We visited its Pasir Gudang yard recently. Activities, especially at its heavy engineering ops, are ongoing albeit not as robust as its pre-Covid days (2019) as it progressively resumes operations, after having
experienced multiple lockdowns in 2021. The marine repair & conversion ops are still doing fairly well (cashflow positive) despite the challenges faced now. That said, activities there has yet to return to normalcy, for it faces: (i) competition from its Singapore peers, which offer sizeable price discounting for vessels repair works (volume) and (ii) travel restrictions (unavailability of key consultants/ engineers).
Aspires for an improved 2022
While the sub-par 2021 is well-flagged, MMHE is optimistic of an improved 2022. There is a realistic chance for MMHE to secure MYR1b worth of new orders this FY (order backlog: MYR2.5b @ Sep 2021), based on the tenders pipeline (MYR10b; 20% domestic; 80% overseas). We envisage that most of these new projects will likely be announced in 2H22. For this, MMHE targets to financially turnaround in 2022. To break-even, we estimate that it needs to realise gross profits of MYR100m/ MYR80m p.a. at its heavy engineering/ marine repair ops.
Going green too
Operations/ earnings turnaround aside, ESG improvements remain key too. While its ESG progress has been commendable vis-à-vis MY peers, setting up: (i) a more comprehensive ‘E’ agenda (carbon reduction, offsets, carbon neutral, energy transition/ decarbonisation) and (ii) short-/mid-/long-term sustainability framework, would be well-received.