Period

2Q15/1H15

Actual vs. Expectations

MMCCORP’s 1H15 core net profit (CNP) of RM101.1m accounts for 31% and 25% of our and consensus full-year estimates, respectively. However, we deem the results to be broadly inline as 2H15 is expected to see an upswing in earnings when Tanjung Bin is back in action.

Dividends

None as expected.

Key Results Highlights

YoY, MMCCORP’s 1H15 net profit soared by 665% to RM1,445.3m, driven by the one-off gain of RM1,344.1m from the listing of MALAKOF, bringing its revenue down by 28%. Stripping the one-off gains, MMCCORP registered RM101.1m (+27%) in core net profit driven by higher associate contributions (+21%), and also its transport and logistics division, which registered 40% growth in pre-tax profits driven by higher throughput handled at Pelabuhan Tanjung Pelepas (PTP).

QoQ, 2Q15 core net profit saw a drastic drop by 94% to RM5.5m due to margin compression from its engineering and construction division that saw its pre-tax margin falling by 20ppt to 16%. That aside, its others division’s losses increased by 44% to RM130m, due to the provisioning for claims for a discontinued project in the Middle East.

Outlook

Near-medium-term prospect remains intact. Postlisting of Malakoff, MMCCORP will continue to focus on its three growing core businesses, namely construction, ports and logistics and land sales in Johor. To recap, MMCCORP managed to secure a buyer for its 188 acres land in early August for a total consideration of RM369.9m, which is still pending completion.

Change to Forecasts

No revision in earnings.

Rating

Maintain OUTPERFORM

Valuation

We maintain OUTPERFORM on MMCCORP with a lower TP of RM2.91 based on SoP as we have widened our holding company’s discount to 30% from 20% previously, and we still believe that MMC would be able to realise its asset values in near-medium term, i.e. land sales and growing its port businesses. Our TP implies FY16E PER of 25.1x, which is still inline with 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

Source: Kenanga Research - 27 Aug 2015