Investment Highlights

• We maintain our BUY recommendation on MMC Corporation (MMC) with a slightly lower FV of RM1.58 (vs. RM1.66 previously) based on sum-of-parts (SOP) valuations (Exhibit 2), 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 trim our FY19–21F forecasts by 8%, 6% and 14% respectively.

• MMC's 9MFY19 core net profit of RM179.2mil (adjusted for oil spill incident compensation and disposal gains) came in below our expectations but slightly above consensus estimates, making up 65% of our full-year forecasts and 78% of consensus estimate. We believe the variance against our forecast came mainly from higher-thanexpected operating expenses.

• MMC’s 9MFY19 core net profit surged by 36% 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 is 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.

Source: AmInvest Research - 27 Nov 2019