KUALA LUMPUR, June 2 ― Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) said it will deliver ‘three major projects’ in 2014. However, it didn't identify the projects it was referring to on page 9 of its Q1 earnings report.

Furthermore, the company admits to having fewer ongoing projects this year. At the same time, its ship-building unit is in various stages of actively bidding for projects. If successful, these will likely materialise only in the ‘later part’ of the year.

In its prospects statement, MMHE also emphasised on the short-term competition due to increased vessel repair capacity in the region, but it remains upbeat on medium term prospects of the vessel repair business.

The company just announced earnings for Q1 FY14:

Revenue: -27.1 per cent to RM671.5million

Profit: -31.6 per cent to RM34.6million

Forex gains/losses: RM10.7million vs (RM1.9million)

Cash flow from operations: RM62.8million vs (RM220.9million)

Dividend: Nil

Order book: Not disclosed

Revenue was lower due to a 30 per cent drop in ship-building revenue, which was partially offset by an increase of more than 25 per cent in ship-repair revenue.

MMHE says ship-building revenue declined as most of its projects are nearing completion and has a relatively lower value of progress billings remaining. Ship-repair revenue was higher due to work to extend the life of an LNG vessel during the quarter. Net profit declined due to a drop in finance income with a corresponding rise in finance costs.

Also, it recorded a RM0.5 million share of loss of joint ventures compared to a RM1.1 million share of profit in same quarter last year.

Investor Central. We keep your investments honest.

1. Which ‘three major projects’ will it deliver in 2014?

Sorry but the earnings report didn't reveal more about these projects.

What profit contribution will these projects make?

2. What is the size of its order book?

We couldn't spot the details about its order book in the Q1 earnings report.

We wonder how much do the ‘three major projects’ contribute to its order book and how does it plan to replenish the order book after these projects are delivered during the year.

3. What is the value of orders is it currently bidding for?

While the company expects the bidding processes would yield orders later in the year, we wonder how aggressively it is participating in grabbing them.

4. Which joint ventures made losses in Q1?

MMHE recorded a RM0.5 million share of loss of joint ventures compared to a RM1.1 million share of profit in same quarter last year.

So, which joint ventures made the losses this time? And why?

5. Did it cut back ‘capital commitments’ despite a massive cash balance?

According to page 7 of its Q1 earnings report, MMHE's outstanding ‘capital commitments’ stood at RM338.3 million on March 31.

That's about RM392 million less than its outstanding capital commitments of RM730.1 million a quarter ago on December 31. The outstanding capital commitments relate to the infrastructure upgrading works under the ‘Yard Optimisation Programme’ and other investment projects of the company.

But a quick look at its cash flow statement on page 3 shows that only RM53.4 million were spent on ‘property, plant and equipment’ during the quarter. Therefore that makes us wonder how its ‘capital commitments’ reduced by about RM392 million, when it spent only RM53.4 million during the quarter.

That leads us to assume that MMHE had cut back on its capital expenditure during the quarter. But then, why would it do so when it has a RM676.9 million cash balance on its books?

6. How much worth of ‘trade and other receivables’ did it settle during the quarter?

In its cash flow statement (page 3), the company claims to have received RM26.6 million cash from ‘trade and other receivables’ during the quarter.

But according to its balance sheets on the immediately previous page of the earnings report, ‘trade and other receivables’ only declined by about RM16.9 million during Q1. We are scratching our heads to figure out why there was a difference.

7. When will it use the remaining RM169.68 million proceeds from its 2010 IPO?

MMHE raised RM980.78 million in gross proceeds from its IPO in 2010. On February 21, the company tweaked, for the second time, the utilisation of the IPO proceeds.

It would now use RM110million - which were originally allocated for capex in Turkmenistan - for its ‘Yard Optimisation Programme.’ And the deadline to use the proceeds expired on April 4. But according to MMHE’s Q1 earnings (page 9) released on May 7, it still hasn't used RM169.6 million allocated for the ‘Yard Optimisation Programme.’

Therefore we wonder why it missed the April 4 deadline to use the funds. And how soon will it deploy the remaining proceeds from the IPO? We have sent these questions to the company ([email protected]) to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message). ― Investor Central

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