KUALA LUMPUR: Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) is likely to record improve performance in the financial year ending December 31, 2021 (FY21) on the back of higher contribution from Kasawari gas development project and the marine segment.
Hong Leong Investment Bank Bhd (HLIB Research) in a note said the liquefied natural gas (LNG) activity is picking up and this could bode well for the marine segment if the trend continues.
"It needs to replenish its orderbook backlog before Kasawari reaches the tail end of its construction phase or risk experiencing a huge decline in revenue in FY22 and beyond," HLIB analyst Low Jin Wu said.
The research firm remains cautious on MMHE's operational track record despite higher expected revenue contribution from its orderbook backlog.
"We maintain our hold rating with a target price of RM0.43 per share. We would need to see an improvement in operational efficiency from MMHE to warrant a buy call on the stock," said Low.
MMHE's widening negative free cash flow also remains a cause of concern as it had grown by about 70 per cent year-on-year (YoY).
Its sizable debt drawdown facilities of about RM600 million is expected to satisfy any working capital required for operations for a year.
For the fourth-quarter (Q4) ended December 31, 2020, MMHE posted a net loss of RM8.5 million from a net profit of RM9.27 million recorded in the same period a year ago.
This was attributed to higher operating losses in the heavy engineering segment.
Its Q4 revenue rose 152.3 per cent to RM695.5 million from RM275.6 million due to higher revenue from the heavy engineering segment.
For the full year ended December 31, 2020, MMHE's net losses widen to RM396.81 million, from RM34.22 million a year ago, owing to provision made for Covid-19 impact and the associated higher unabsorbed overheads due to lower activities resulting from yard closure and border restriction.