Wednesday, Mar 27, 2019
MARC has affirmed its rating of AA-IS on Malaysia Marine and Heavy Engineering
Holdings Berhad’s (MHB) RM1.0 billion Sukuk Murabahah Programme with a stable outlook.
The affirmed rating incorporates a one-notch rating uplift based on
MHB’s status as a member of the Petroliam Nasional Berhad (PETRONAS) group of
companies. PETRONAS carries a AAA/stable rating from MARC. MHB’s standalone
rating reflects its strong competitive advantage stemming from its
position as the largest offshore fabricator in the country. Its conservative
balance sheet and strong liquidity position continue to underpin the rating.
Moderating the rating is the weaker-than-expected order book replenishment that
has continued to weigh on MHB’s performance.
The stable outlook assumes improvement in MHB’s order book and that its
healthy liquidity position will be maintained.
As at end-2018, MHB had a sizeable RM5.5 billion worth of contracts in
its tender book, the majority of which comprises contracts from related
companies, leading to a higher likelihood of it being awarded some of
these contracts. This would improve its modest order
book of RM826.0 million (end-2017: RM1.3 billion). However, should MHB’s order
book substantially weaken in the near term, leading to a strain on its liquidity, its current
standalone rating could come under pressure.
MHB’s existing contracts consist of the engineering, procurement, construction, installation
and commissioning (EPCIC) of an offshore central
processing platform for the Bokor Phase 3 Re-development project in Sarawak which
is expected to be completed in 2020. MARC understands that MHB has signed a
six-year long-term agreement with Saudi Arabian Oil Company in
collaboration with TechnipFMC Plc. It was also awarded a frame agreement by PETRONAS for
two packages of engineering, procurement and construction contracts during
4Q2018.
For 2018, MHB’s revenue was relatively unchanged at RM974.4 million
y-o-y (2017: RM956.4 million). However, MHB recorded pre-tax loss of
RM124.1 million (2017: pre-tax profit of RM11.0 million) mainly due to
significant losses of RM81.7 million in its marine business unit. Its other key
segment, heavy engineering, remained in the red, recording a loss of RM39.0
million in 2018 on low revenue following the completion of contracts.
Despite incurring losses from its operations, MHB’s cash flow from
operations remained positive at RM51.4 million on the back of
lower working capital requirements. Liquidity remained strong with cash
balances of RM589.3 million as at end-2018. As at end-2018, MHB’s borrowings
stood low at RM48.4 million. MHB plans to draw down an additional RM350.0
million to finance the construction of a third dry dock which would
raise its debt-to-equity ratio to about 0.16x.
Contacts:
Douglas Alwis,
+603-2717 2965/ douglas@marc.com.my
Sharidan
Salleh, +603-2717 2954/ sharidan@marc.com.my