FW: MARC AFFIRMS ITS AA-IS RATING ON MALAYSIA MARINE AND HEAVY ENGINEERING HOLDINGS' SUKUK MURABAHAH PROGRAMME OF UP TO RM1.0 BILLION; REVISES OUTLOOK TO STABLE

 

 

 

P R E S S  A N N O U N C E M E N T

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS ITS AA-_IS RATING ON MALAYSIA MARINE AND HEAVY ENGINEERING HOLDINGS’ SUKUK MURABAHAH PROGRAMME OF UP TO RM1.0 BILLION; REVISES OUTLOOK TO STABLE

 

MARC has affirmed its AA-_IS rating on Malaysia Marine and Heavy Engineering Holdings Berhad’s (MHB) RM1.0 billion Sukuk Murabahah Programme. Concurrently, MARC has revised the rating outlook to stable from negative. Currently, there is no outstanding sukuk under the rated programme.

 

The outlook revision is driven by MHB’s increasing order book and the improving outlook for the oil and gas industry that would mitigate any significant asset impairment which has pressured MHB’s profitability metrics in recent years. The affirmed rating incorporates a one-notch rating uplift, premised on MHB’s status as a member of the PETRONAS group (AAA/Stable). MHB’s standalone rating reflects its domestic market position as the largest marine and heavy engineering solutions provider, its strong capital structure and healthy liquidity position.

 

As at end-2017, MHB’s order book stood at RM1.3 billion, increasing twofold from RM629 million as at end-2016. PETRONAS remains the company’s main source of contracts which include the RM1.1 billion contract for the construction of an offshore central processing platform (CPP) which is part of the Bokor Phase 3 Re-development in Sarawak. MARC notes that this is the first major contract secured by MHB since the TLP Malikai and SK316 contracts in 2013. While upstream activities have yet to recover substantially to fully benefit MHB’s heavy engineering division, its order book provides moderate earnings visibility over the intermediate term, supported by the likelihood of securing additional contracts from a sizeable tender book of RM3.1 billion. A large proportion of its tender order book involves contracts from related companies. MHB will also strengthen its marine conversion and repairing businesses by constructing a third dry dock to meet the improving demand for marine repair services. Its existing two dry docks are currently operating at over 70% capacity each.

 

For 2017, MHB recorded a pre-tax profit of RM11.0 million in the absence of a substantial asset impairment compared to 2016 when it registered a pre-tax loss of RM135.0 million due to asset impairment of RM140.5 million. Cash flow from operations (CFO) improved to RM70.0 million (2016: negative RM107.0 million). During the period, MHB incurred a total capex of RM42.5 million. Liquidity position remained strong with cash balances of RM675.0 million as at end-2017. MARC notes that MHB maintains a conservative balance sheet with no outstanding borrowings. The construction cost of the third dry dock of about RM500.0 million is not expected to significantly affect MHB’s leverage position. Assuming the construction is fully funded by borrowings, its pro forma debt-to-equity ratio would rise to a manageable 0.2 times.

 

The stable outlook reflects MARC’s expectations that MHB will continue to maintain a conservative balance sheet and sustain a meaningful order book size that would support earnings growth going forward.

 

The full Credit Analysis Report will be made available on MARC’s website at www.marc.com.my.

 

 

Contacts: Joan Leong +603-2717 2934/ joan@marc.com.my, Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my

 

March 29, 2018

 

[This announcement is available in MARC’s corporate homepage at http://www.marc.com.my]

----   DISCLAIMER    ----

 

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

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