We maintain our BUY recommendation on MMC Corporation (MMC) with a higher FV of RM1.72 (vs. RM1.66 previously) based on sum-of-parts (SOP) valuations, applying an FY20 PE of 18x for its ports division (at a 20% discount as compared with its peer to reflect its lower margins). We raise our FY19–21F forecasts by 53%, 52% and 49% respectively.
MMC's 9MFY19 core net profit of RM311.9mil (adjusted for oil spill incident compensation and disposal gains) came in above expectations, already surpassing our full-year forecast and the full-year consensus estimates. We believe the variance against our forecast came mainly from higher-than-expected construction profits and lowerthan-expected finance and administrative costs.
MMC’s 9MFY19 core net profit surged by 136% YoY. Strong performance from the ports & logistics segment (due to higher volume handled at PTP and Johor Port (JPB), as well as higher contribution from Red Sea Gateway Terminal), construction (higher work progress at the MRT) and associate Malakoff (attributed to improved contribution from the Tanjung Bin Energy (TBE) coal plant, lower barging and demurrage costs and lower net finance costs), more than offset the weaker showing by associate Gas Malaysia (which we believe was due to higher operating expenditure). Also helping were lower finance and administrative costs.
Moving forward, the group plans to continue investing in its ports infrastructure to improve operational and cost efficiencies. On the construction side, the group will continue to bid for new jobs, particularly the rail projects announced under Budget 2020.
We continue to like MMC due to its cheap implied valuation for the group’s port business (14x forward P/E vs. over 20x of its peer). We also believe MMC’s ports & logistics segment will benefit from the resilient outlook in the region’s port sector, underpinned by investments in the manufacturing sector that generates tremendous inbound and outbound throughput. Maintain BUY.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....