MALAYSIA MARINE AND HEAVY ENGINEERING HOLDINGS BERHAD - 2022 |
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| Report ID | 6053890046863 | Popularity | 445 views 23 downloads | |||||
| Report Date | Aug 2022 | Product | ||||||
| Company / Issuer | Malaysia Marine and Heavy Engineering Holdings Berhad | Sector | Infrastructure & Utilities - Oil & Gas | |||||
| Price (RM) |
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| Rationale |
Rating action MARC Ratings has affirmed its AA-IS rating on Malaysia Marine and Heavy Engineering Holdings Berhad’s (MHB) RM1.0 billion Sukuk Murabahah Programme with a stable outlook. There is no outstanding amount under the programme as at end-July 2022. Rationale The rating reflects MHB’s conservative balance sheet and strong liquidity position as well as its strong competitive position as the largest domestic offshore fabricator. The rating also benefits from a one-notch uplift based on MHB’s status as a member of the Petroliam Nasional Berhad (PETRONAS) group and MARC Ratings’ view of continued business support from the group. The rating is moderated by the uncertain timing and quantum of contracts awarded as well as supply chain disruptions that have impacted its cash flow generation. MHB has expedited work on some delayed heavy engineering construction projects since the resumption of economic activities in 3Q2021. It undertook a higher number of vessel repair and maintenance works on foreign vessels that were allowed to enter the country and from the commissioning of its Drydock 3 in December 2020. In 1Q2022, MHB recorded operating profit of RM6.3 million that includes recovery from COVID-19 related costs from its key clients. We understand MHB expects to recover more of these in 2022. In 2021, MHB completed a further 33.85% of the construction works on its main project, the Kasawari gas development, compared with 25.74% in 2020. In its marine business unit, MHB undertook a larger number of vessel repair and maintenance works at 97 vessels compared with 64 vessels in 2020 as foreign vessels were allowed to enter the country and dry-docking capacity increased after the commissioning of Dry Dock No 3 in December 2020. While on-site work has picked up, we understand that supply challenges remain, particularly pertaining to key equipment and parts for the projects. Notwithstanding this, MHB has so far managed to procure these from alternative suppliers. MHB’s revenue in 2021 declined to RM1,467.3 million from RM1,566.8 million in 2020, due to lower contribution from its marine unit as the value of contracts secured was smaller despite having a larger number of vessels. The heavy engineering unit registered a marginal increase in revenue. In 1Q2022, MHB registered higher revenue at RM417.7 million compared with RM343.6 million in the previous corresponding period, contributed by higher revenue from both units. The group incurred pre-tax loss of RM274.1 million in 2021 mainly due to additional cost provisions made for ongoing projects, brought about by the extended completion date and COVID-19 impact during the year. The additional costs caused by the pandemic are not expected to heavily affect MHB’s future profitability as movement restrictions have largely been lifted. Furthermore, MHB continues to pursue the recovery of these costs under its heavy engineering unit from its key clients. These efforts have borne fruit with MHB managing to recover part of its COVID-19-related costs in 1Q2022, allowing the company to record operating profit of RM6.3 million for the quarter. MHB expects more costs to be recovered in 2022 upon its clients’ approval on its claims for the additional costs. MHB’s order book stood at RM1.9 billion as at end-March 2022, providing earnings visibility up to 2024. In 1Q2022, MHB secured a RM22.0 million front-end engineering design (FEED) contract from PETRONAS Carigali Sdn Bhd for the Kasawari Carbon Capture & Storage (CSS) project, which increases the likelihood that the group will secure the fabrication contract for the same project earliest by end-2022. MHB’s debt-to-equity (DE) ratio stood at 0.21x as at end-March 2022. We expect MHB to continue maintaining a conservative balance sheet with future capex of RM108.1 million in 2022 to be substantially funded by internal cash. MHB’s liquidity position is strong with cash and cash equivalents amounting to RM853.5 million as at end-March 2022. Rating outlook The stable outlook reflects MARC Ratings’ expectation of an improved operating environment and assumes MHB will maintain its credit profile in the next 12 to 18 months, underpinned by low leverage and strong liquidity positions. Rating trajectory Upside scenario An upgrade of its standalone rating could be considered in the medium term should MHB manage to steadily increase earnings contribution from the more stable marine business unit and consistently maintain positive cash flow generation. Downward scenario The standalone rating could be lowered in the event that the company’s liquidity position weakens significantly and/or if MHB’s financial performance were to deteriorate sharply from expectations. Key strengths
Key risks
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