Investment Highlights

• We raise our FY20–21Fnet profit forecasts by 1% each but maintain our FV of RM1.58 based on “sum of parts” (SOP), valuing its seaport business at 18x forward earnings (vs. 23x for peer Westports) (Exhibit 1). We maintain our BUY recommendation on MMC Corporation (MMC)

• MMC, via a JV between two of its subsidiaries and external party Sedia Engineering Works Sdn Bhd, has been awarded by Petronas a RM131.4mil contract for the EPCC of the PGU-I Gas pipeline replacement project (also known as graphite) comprising pipeline and station works covering 33km in Terengganu, with a contract period of 35 months.

• We are positive on the latest development. Assuming a 67% share equivalent to RM87.6mil, this will boost MMC's total outstanding order book to RM8079.3mil (Exhibit 2). We have adjusted our earnings forecasts to reflect this.

• We continue to like MMC due to its cheap implied valuation for the group’s port business (14x forward PE). 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. The weak currency and cheaper port charges will also become a strength for the port operator as shipping lines are seeking ways to rationalize their cost structures amidst a tough operating environment, on the back of global economy slowdown and the impending IMO 2020 sulphur cap requirement (that will be enforced in January 2020) which will result in additional costs for the shipping lines. Maintain BUY.

Source: AmInvest Research - 9 Dec 2019