KUALA LUMPUR: Malaysia Marine & Heavy Engineering Bhd's (MMHE) results for the second quarter (Q2) of its financial year 2023 come in below expectations, said MIDF Research.
MMHE reported a loss of RM388.7 million in Q2 FY23 against a profit of RM22.1 million last year mainly due to additional cost provisions for ongoing heavy engineering projects recognised in the quarter.
"In consideration of MMHE's Q2 FY23 performance, barring the additional provision cost, which is still below expectations, we revised our earnings estimates to mirror the current run rate.
"We are also considering the lower profit margin for its marine segment (about five per cent) in the quarter, and its breakeven position for the heavy engineering segment, in addition to the expectation of an increased competitiveness in dry-docking activities from the reopening of China's borders," it said in a note.
MMHE's clients had requested for additional processes to be completed prior to offshore load out.
MIDF Research said this caused for a revised schedule and extension on delivery dates for the ongoing undisclosed projects, which are necessary to cater for the delayed onshore works.
In a bid to adhere to the timeline, the firm said MMHE had incurred the cost and yet to receive a writeback from the clients, which is recognised in Q2 FY23 accounts.
"The practice of provisional pricing in lieu of an extension on delivery dates is common in the oil and gas sector," it said.
MIDF Research believes without the cost provision, the company's heavy engineering segment is performing at a breakeven.
"At this juncture, we revised our call from Buy to Neutral for MMHE, as we noted the reported loss was due to a one-off provision cost incurred by MMHE for ongoing heavy engineering projects.
"We believe the writeback for these projects will be present in Q3 FY23's earnings performance.
"Nevertheless, due to the lower earnings in Q2 FY23 for the marine and heavy engineering segments, barring the provision cost, we revise downward our earnings forecast and thus, our target price to 51 sen from 81 sen previously," it added.