Investment Highlights

• We cut our FY20–22F forecasts by 14%, 19% and 17% respectively, and lower our fair value by 3% to RM1.52 (from RM1.56) based on sum-of-parts (SOP) valuation (Exhibit 3). This values its ports division at 16x FY21F EPS (a 30% discount to its peers' historical average to reflect its lower margins). We maintain our BUY recommendation.
• MMC's 9MFY20 core net profit of RM192mil (adjusted for disposal gains) came in below our expectations but beat consensus estimates, accounting for 63% and 79% of our full-year forecast and the full-year consensus estimate respectively. We believe the key variance against our forecast came largely from the slower-than-expected work progress at the MRT2 and lower share of profits from associate Malakoff and the general cost pressure. We have reflected these in our revised forecasts.
• MMC’s 9MFY20 core net profit improved by 35% YoY, thanks to higher volume handled at Pelabuhan Tanjung Pelepas (PTP) and a higher share of results of associates, namely Malakoff (due to contribution from Alam Flora following the completion of its acquisition on 5 Dec 2019, higher contribution from its associates, lower operations and maintenance costs, as well as higher contribution from its subsidiary, Tanjung Bin Engineering). Also helping, were the lower finance cost and sale of land at Senai Airport City (SAC) in 9MFY20.
• However, these were partly offset by the lower volume handled at Northport and Penang Port, slower work progress from the MRT2, and lower passenger and cargo volumes at Senai Airport.
• MMC plans to continue investing in its ports infrastructure and focus on resource optimization to improve operational and cost efficiencies. On the construction side, the group will continue to bid for new jobs while focusing on the execution and timely completion of its existing projects.

Source: AmInvest Research - 26 Nov 2020