MMC’s 9M18 PATAMI of RM100.4m (-29% yoy) came in below consensus estimates, delivering only 50% of its full year forecast. The miss can be attributed to the weaker than expected performance from its energy & utilities (ie Malakoff). Although its ports operations have manage to turnaround in 3Q18, this was insufficient to compensate for the weakness in 1H18.

Ports & Logistics – Existing Operation Remains Weak

The 9M18 PBT for the ports and logistic operation is down by 22% yoy, due to the poor performance from Johor Port and Northport, both suffering from lower activities. Although both ports have shown some improvement in performance for the 3Q, profitability of these ports are still significantly weaker yoy. The overall performance for the segment could be worst, if not for the recognition of negative goodwill of RM51.7m post the complete acquisition of Penang Port.

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

PBT from this segment increased by 88% yoy due to higher progress recognition for the KVMRT line 2 and Langat Sewerage Treatment project, and due to the one-off provision it made on SMART last year. While we anticipate stronger contribution in the coming quarters, the future is likely to be challenging, as the overall contract value for the underground portion of MRT 2 reduced by 21.5%. The government is also still looking at ways to reduce the overall cost of the Pan Borneo Highway 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 27% yoy, mainly due to lower contribution from Malakoff. Malakoff’s Tanjung Bin Energy (TBE) was faced with unscheduled outage issue in 9M18.

Source: Affin Hwang Research - 28 Nov 2018