Maintain BUY and MYR0.85 TP
FY21 results came in line. 4Q21 ops continued to be disrupted by the prolonged border restrictions and seasonal weakness. While the YoY operating underperformance is well-flagged, its cash levels and order
backlog have improved YoY, a positive. Focus should be on FY22, on expectation of a stronger order & tender pipeline and earnings turnaround. MMHE is cash rich and undeservedly undervalued. Our TP is
unchanged, based on 0.8x EV/ order backlog (mean valuation) expectation of MYR1.2b.
Snapshot of 4Q21 results
MMHE remained in the red for the 4th consecutive quarter, with a sequentially higher core net loss of MYR26m (+6% QoQ) in 4Q21. The setback was expected, for its heavy engineering (HE) and marine repairs (MR) ops continued to be disrupted by the prolonged border restrictions and seasonal weakness (lower dry-docking activities). We estimate MMHE recognised substantial exceptional loss (~e.MYR81m) in 4Q21, on additional cost provisions at its existing HE projects.
Rising cash level, order backlog and tender pipeline
While the YoY operating underperformance is well-flagged, its net cash levels (+45% to MYR463m @ MYR0.29/shr) and order backlog (+14% to MYR2.2b) have improved YoY, reflecting the improved cost/ cashflows management controls and revived capex spending in the industry, in lieu of the oil price strength. Consequently, the tender pipeline too has improved to MYR14b now (vs. MYR10b in 3Q21). 85% of that are international bids.
A better FY22 outlook
Our earnings estimates are unchanged. MMHE is optimistic of an improved 2022. There is a realistic chance for MMHE to secure MYR1-2b worth of new orders this FY (order backlog: MYR2.2b @ Dec 2021), based on the tender pipeline (MYR14b). Winning some of these projects will be a positive. Our model imputes a realistic MYR1.4b new order intake in FY22 (vs. MYR1.1b in FY21).