Maintain BUY and MYR0.85 TP
1Q22 results were in line, on improved overall YoY performance (FCFs,
net cash), with tangible signs of recovery. We expect the company to be
on a much stronger footing in FY22, on expectation of stronger
orderbook replenishment and a healthy tender pipeline, that should
contribute to an 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 1Q22 results
MMHE reported improved EBIT/ headline net profit of MYR6m/ MYR3m
respectively in 1Q22 (vs. –MYR102m/ –MYR104m in 1Q21), which included
a net MYR8m one-off gain; largely from the reversal of warranty
provisions for a post sail-away project (MYR9m). Excluding that, MMHE
reported a marginal net loss of MYR5m in the quarter. That said, this is
an encouraging start, with a: (i) sustained recovery at its marine repair
ops (revenue: +51% YoY; EBIT: +MYR4m vs. –MYR18m in 1Q21), on higher
works conducted (16 vessels).
Rising cash level and tender pipeline
Financially, its higher net cash level (+24% to MYR492m @ MYR0.31/shr)
and +ve FCF reflect improved cost/ cashflow management controls. The
tender pipeline too has continued to improve, to MYR18b-19b now (vs.
MYR14b in 4Q21), tell-tale signs of revived capex spending in the
industry. The reopening of borders, removal of compulsory quarantine
requirement and lifting of restrictions on the entry of foreign technical
experts will further aid its operations recovery.
An improving 2022 outlook
Our earnings estimates are unchanged. There is a realistic chance for
MMHE to secure MYR1b-2b worth of new orders this FY (order backlog:
MYR1.9b @ Mar 20212. Our model imputes a realistic MYR1.4b new order
intake in FY22 (vs. MYR1.1b in FY21).