MMHE’s value – emerging or disappearing?

PETALING JAYA: Marine and Heavy Engineering Holdings Bhd’s (MMHE) value is starting to emerge as most of its projects will be delivered from FY18, and its marine business segment remains strong, said RHB Research Institute.

The research house said MMHE also has a clean balance sheet with marginal borrowings, and the stock is trading at a deep discount to regional peers.

“We caution that MMHE’s value may not emerge in a fortnight, but at the current , it is trading at a deep 54% discount to its book value, with cash per share of 43 sen.”

MMHE’s stock fell one sen to 70 sen last Friday on 1.02 million shares traded, giving it a market capitalisation of RM1.12 billion.

RHB said FY17 would be a forgettable year for MMHE, as it faces a dwindling order book with most of its projects being completed during the year. It expects MMHE to start registering profit in FY18, backed by its RM1.6 billion order book. Its cash as of second quarter 2017 (2Q17) stood at RM682 million, with borrowings of RM20 million. MMHE also registered positive free cash flows in 2Q17, after four quarters of outflows.

“We caution that MMHE’s value may not emerge overnight but we believe that from a valuation standpoint, it is trading at an all-time low, with upside potential,” said RHB, upgrading MMHE to a buy with revised target price of 90 sen.

Meanwhile, Capital said MMHE’s 2Q17 losses widened as weaker margins continued to be the main culprit for both the heavy engineering and marine business units.

“We cut our 2017-2019 earnings by 79%, 4%, 11% as we lower our margin assumption for both business segments. We cut our 12-month target price to 73 sen (from RM1.12),” said Affin, as it downgraded MMHE to “hold” from “buy”.

HLIB Research said weaker-than-expected order book replenishment and deferment of major modification, construction and maintenance project has reduced the likelihood of MMHE returning to the black this year. It does not foresee any major earnings catalysts in the near term.

HLIB said MMHE’s target price is cut to 67 sen from RM1.13 as it downgraded the stock to a “hold”.

Source: The Sun Daily

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