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.

The rating reflects MHB’s conservative balance sheet, strong liquidity position as well as its strong competitive position as the largest domestic offshore fabricator. These strengths are counterbalanced by the uncertain timing and quantum of contracts awarded as well as supply chain disruptions that have impacted its cash flow generation. The rating benefits from a one-notch uplift based on MHB’s status as a member of the Petroliam Nasional Berhad (PETRONAS) group and MARC Ratings’ view of continued business support from the group.

MHB has expedited work on some delayed heavy engineering construction projects since the resumption of economic activities in 3Q2021. It undertook a higher number of vessel repair and maintenance works on foreign vessels that were allowed to enter the country and from the commissioning of its Drydock 3 in December 2020. In 1Q2022, MHB recorded operating profit of RM6.3 million that includes recovery from COVID-19 related costs from its key clients. We understand MHB expects to recover more of these in 2022.

As at end-March 2022, it had an order book of RM1.9 billion. Based on the fact that MHB has secured a front-end engineering design (FEED) contract from PETRONAS Carigali Sdn Bhd for the Kasawari Carbon Capture & Storage project in 1Q2022, there is a high likelihood that the group will secure the fabrication contract for the project.

Liquidity position remains strong, as reflected by cash and cash equivalents of RM853.5 million as at end-March 2022. Its debt-to-equity ratio stood at 0.21x as at end-March 2022. We expect MHB to continue maintaining a conservative balance sheet given its near-term capex will be substantially funded by internal cash.