Period  2Q14

Actual vs. Expectations MMC’s 1H14 core net profit of RM79.4m came in within our expectation but below consensus’, accounting for

55% and 29% of ours and market estimates. We derive our core net profit after we exclude: (i) disposal loss of RM10m from completed land sale nearby Senai Airport, (ii) PTP’s investment tax allowance of RM91m (MMC level), and (iii) fair value gain of RM28.6m (MMC’s level) arising from revaluation of Port Dickson Power (PDP).

Dividends  None as expected.

Key Results Highlights QoQ, 2Q14 revenue and core net profit rose significantly by 54% and 137%, respectively, driven by better profits from Energy & Utilities (E&U) and construction divisions. E&U division’s revenue and PBT were higher by 19% and 193%, respectively, driven mainly by Malakoff following higher dispatch factor from its Tanjung Bin power plant. The plant has recovered strongly in 2Q14 from forced outages in a previous quarter. As for construction division, the key driver was the MRT project which has reached the active phase of the completion stage.

 YoY, 2Q14 revenue and core net profit rose by 70% and 27%, respectively due to abovementioned reasons.

 YTD, 1H14 core net profit improved significantly by 51% due to strong base effect. Recall, Malakoff undertook major maintenance for its Tanjung Bin Plant in 1H13. At the same time, the MRT project was still at the early-mid stage of the development hence lower billings.

Outlook  The momentum of MMC’s construction division has picked up this year. Year-to-date, MMC has secured approximately RM600m worth of contract. Latest project secured on 12 May 2014 was the civil works of co-generation plant worth RM300m. We estimate by now, MMC’s total outstanding orderbook now is RM3.3b which will last until 2016-2017.

 Nevertheless, the Malakoff listing still remains the key catalyst for MMC. With the listing of Malakoff, MMC could reduce its debt substantially. Post-listing of Malakoff, MMC could focus more on its construction division, which has a bright outlook, especially with the up-coming RM25b KVMRT2 project.

Change to Forecasts No changes to estimates. However, we may review our estimates during our upcoming management visit.

Rating UNDER REVIEW

 The stock’s key catalyst still lies in Malakoff listing which is postponed to likely next year. MMC’s share price has been trending downward of late until now trading at below its book value per share of RM2.38. We are reviewing our recommendation on MMC (currently MARKET PERFORM) pending meeting with management for better clarity on the group’s outlook.

Valuation  We are putting MMC’s Target Price of RM2.77 (based on SoP-based valuation) under review pending management meeting soon.

Risks to Our Call No delay in Malakoff listing.

Source: Kenanga