MMC’s 1H18 PATAMI of RM61m (-46.7% yoy) came in below both our and consensus expectation, delivering only 20% and 18% of our and consensus forecast respectively. The miss was due to lacklustre performance from its port operation and also lower contribution from its associate (Malakoff). Although the E&C segment continued to delivered better results, this was not sufficient to compensate for the decline.

Ports & Logistics – Johor Port and North Port Are the Weak Links

Although revenue for the segment was down only 2% yoy, its PBT declined by 43% yoy in 1H18. The decline was due to poor performance from Johor Port and Northport, both suffering from lower activities. Container volume at Northport continued to decline, it is down by 13% yoy for 1H18. While Port of Tanjung Pelepas has benefited from the alliance, the gain has not been sufficient to compensate for the revenue loss at Northport. The government’s decision to defer a tariff hike at Port Klang for 6 months to March 1, 2019 will not bode well with Northport’s current performance.

Engineering & construction (E&C) – Uncertainty still in the air

PBT from this segment increased by 152% yoy due to higher progress recognition for the KVMRT line 2 and Langat Sewerage Treatment project. Although we anticipate stronger contribution in the coming quarters, the future might not be as rosy, as the new government has scraped the MRT 3 project. Despite keeping the Pan Borneo Highway project, the government is still looking into the mechanism and direction of the project, where MMC is part of the consortium that secured the PDP role.

Weaker Associate and JV Contribution

Apart from the weaker performance from its core operation, its contribution from its associates and JV has decline by 42% yoy, mainly due to lower contribution from Malakoff. Malakoff’s Tanjung Bin Energy (TBE) was faced with unscheduled outage issue in 1H18.

*Affin Hwang Investment Bank Berhad has been appointed to act as the Independent Adviser to Malakoff (associate of MMC) minority shareholders for the proposed acquisition of Alam Flora

Source: Affin Hwang Research - 27 Aug 2018