MIDF cuts MMHE's FY14 and FY15 earnings forecast

by **Cals** Thu 13 Feb 2014, 08:37

Posted on 13 February 2014 - 05:36am

PETALING JAYA (Feb 13, 2014): MIDF Research, which has downgraded Malaysia Marine & Heavy Engineering (MMHE) to "sell" from "neutral" with a target price of RM2.66, is revising MMHE's FY14 and FY15 earnings downwards by 20.5% and 25.2% respectively, after the company achieved weaker financial performance in FY13.
"We are assuming lower margins from the offshore segment given tight competition locally and globally. This is evident from the weakening offshore operating margin. In addition, we are negative on MMHE due to the tail-end nature of the order book and mid-to-back-end loaded earnings recognition of its major contracts.
"We were proven right when we indicated our reservations that MMHE's 2013 earnings will be able to match 2012's earnings," MIDF said in a note yesterday.
The research house said the group's revenue shrank 13.4% year-on-year to RM2.9 billion, while net profit declined by 2.3% year-on-year to RM236.5 million.
It said excluding deferred tax totaling RM51.9 million for the year, normalised net profit would have been RM184.6 million, below its and consensus estimates by a variance of more than 10%. 2013 bottomline was also the lowest in over four years.
MIDF said the group's current orderbook is RM2.56 billion and the bulk of the backlogs are from the TLP Malikai, SK316, Kebabangan and Tapis jobs.
The research firm said MMHe's latest job win was in September 2013. The group's tenderbook is about RM4 billion to RM5 billion, the majority consisting of international jobs.
Hong Leong Investment Bank (HLIB) in a note said, in its assumptions, had factored in RM2.5 billion and RM3 billion orderbook replenishment for FY14 and FY15 respectively.
However, the bank said margin will continue to be under pressure due to intense competition.
HLIB maintain its "hold" rating on MMHE with an unchanged target price of RM3.87 following the history of delivery delays and earnings disappointments as well as difficult to source engineering and project talent.