News

MMCCORP announced yesterday that it has acquired 42.7m shares representing 9.08% stake in NCB Holdings Bhd from KWAP for RM186.5m or RM4.37/share. The purchase price of RM4.37/share is at a 9.3% premium to the current price of RM4.00/share. Effectively, MMCCORP will own 30.1% NCB stake after this acquisition.

Comments

Positive on the news as: (i) pricing wise, although MMCCORP is paying 9.3% premium to buy KWAP’s block of shares, MMCCORP’s total cost of investment in acquiring NCB’s stake of 30.1% is at RM3.49/share only. This is 14.9% and 4.6% below than current price of RM4.01/share and our NCB’s fair value of RM3.65/share, respectively, (ii) earnings impact wise, NCB will be equity-accounted, hence positively impacting bottomline (i.e. RM11.0m in FY15 and 13.9m in FY16), (iii) balance sheet wise, the acquisition will only increase MMCCORP’s net gearing to 0.83x from 0.79x. This acquisition is also in line with MMCCORP’s plan to increase exposure in Malaysia’s port sector. We believe that MMCCORP will be riding on NCB’s long-term future growth as the latter is in capacity expansion mode.

We also do not rule out the possibility that MMCCORP will expand further its port portfolio by acquiring other port assets within Peninsula region in the foreseeable future. Hence, MMCCORP would then become the biggest diversified port player. Ultimately, the group may want to consider listing all these port assets under one vehicle to unlock its port assets’ value.

Outlook

Stay bright in the near-medium-term. Post-listing of Malakoff, MMCCORP will be focusing on its three growing core businesses, namely construction, ports and logistics and land sales in Johor.

Forecast

Revised 3.5%-4.1% higher our FY15-FY16 earnings to reflect higher associates’ income from 30%-owned NCB.

Rating

Maintain OUTPERFORM

Valuation

Post Malakoff listing, we believe MMCCORP’s nearmedium-term outlook is still compelling driven by its  other three core segments. Hence, we reiterate MMCCORP as our top pick for the sector. We revise higher our SoP-based TP to RM3.33 from RM3.10 after net positive impact of: (i) adjusting MALAKOF’s value in line with our in-house fair value of RM2.22/share, (ii) adjusting ZELAN’s market value, (iii) adjusting NCB’s stake and value in line with our in-house fair value of RM3.65/share, and (iv) revising higher net debt estimates.

Our new TP implies FY16E PER of 27.9x, slightly higher than its 5-year average Fwd-PER of about 25.0x. 

Risks to Our Call

• Below-than-expected new contracts assumption

• Slower-than-expected construction progress

• Delays/scrapped in MRT2 awards

• Slower-than-expected port activities