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. Currently, the programme has no outstanding amount.
The rating incorporates a one-notch uplift on MHB’s standalone rating premised on MARC Ratings’ assessment of the company’s status as a member of the PETRONAS group and the rating agency’s expectation of continued business support from the group. PETRONAS’ interest in the company is via its 51.0%-owned subsidiary MISC Berhad, which in turn has a 66.5% interest in MHB. Meanwhile, MHB’s standalone rating reflects its strong competitive position as the largest domestic energy fabricator and marine solutions provider, and its sizeable order book. The rating is moderated by the company’s exposure to the cyclical oil and gas industry.
MHB had a strong order inflow between 4Q2022 and 1Q2024. As at end-March 2024, its backlog of around RM5.4 billion, of which 71% was from the PETRONAS group, provides good revenue visibility through 2027. Additionally, MHB secured a RM1.5 billion contract to build an offshore substation platform for a wind project in May 2024 from Petrofac International (UAE) LLC, a subsidiary of Petrofac Limited (Petrofac). This is the second contract win from Petrofac, with the first secured in November 2023 that marked MHB’s foray into renewable energy infrastructure development.
MARC Ratings notes that most of MHB’s ongoing contracts were awarded on a lump sum basis with the company bearing all project risks. Against the backdrop of raw material price escalations, global supply chain disruptions, and revised schedules, MHB had incurred additional costs leading to pre-tax loss of RM483.1 million in fiscal 2023. The company, however, is currently pursuing the recovery of these costs from its clients. The rating agency believes the tail end of these lump sum projects will mitigate additional cost provisions. In addition, MHB has taken steps to improve its contracting strategies with clients, through alliance, reimbursable or cost-plus basis. These contracts represented approximately 78% of MHB’s heavy engineering order book as at end-March 2024.
MHB recorded pre-tax profit of RM10.9 million on revenue of RM984.5 million in 1Q2024. Profit came mainly from its marine business, while contribution from its heavy engineering segment was small as its recently secured projects are still in the early stages while the remaining projects are nearing completion. MARC Ratings anticipates MHB’s revenue for 2024 to be sustained around the 2023 level as MHB fulfils its backlog. Projects have been largely financed by short-term banking facilities and internal funds in recent years. Debt-to-equity (DE) ratio rose moderately to 0.40x as at end-March 2024 (end-2023: 0.29x). MHB expects to pare down its borrowings from progress billings and recovery of the aforementioned additional costs, which could see its DE ratio returning to close to the historical level of around 0.2x by year end.