News

MMCCORP announced yesterday that it will be acquiring 251.2m shares representing a 53.4% stake in NCB Holdings Bhd from Permodalan Nasional Bhd (PNB) and Amanahraya Trustees Berhad (ART) for RM1.1b or RM4.40/share. The purchase price of RM4.40/share is only at a slight premium of 0.7% compared to its previous acquisition from KWAP that was transacted at RM4.37/share.

Effectively, MMCCORP will own 83.6% NCB stake after this acquisition, and they will be extending a Mandatory General Offer to take over the remaining 16.5% that it does not own at RM4.40/share.

Comments

We were surprised with MMC’s attempt in this privatisation. Previously even though we did highlighted that they might be looking to expand its port division by acquiring other port assets within Peninsular Malaysia, we downplayed this possibility due to its high net gearing of 0.69x (2Q15). To recap, MMCCORP had earlier acquired a 30.1% stake in NCB from MISC (15.7% at RM3/share), Port Klang Authority (5.3% at RM3.45/share), and KWAP (42.7m at RM4.37/share). The latest acquisition from PNB and ART costs RM1.1b or RM4.40/share for the 53.4% stake, and the proposed MGO for the remaining 16.5% is also at RM4.40/share.

Assuming NCB is taken private which we believe is highly possible this time around given MMC’s surprise move in acquiring PNB and ART’s 53.4% stake, our Port analyst has an ACCEPT OFFER recommendation for NCB for the proposed MGO at RM4.40/share. Should the entire deal goes through (inclusive MGO), MMC need to fork out c.RM1.45b in total, further lifting its net gearing to 0.86x from 0.69x (as of 2Q15), previously.

While we deem the acquisition price of RM4.40/share which implies FY16E PBV of 1.4x to be premium pricing, and the acquisition is earnings accretive in the near-term, we believe that a catalyst lies in MMC’s move in listing all its ports under a single portfolio in the future.

Outlook

Near-medium-term prospect remains intact. Post-listing of Malakoff, MMCCORP will continue to focus on its three growing core businesses, namely construction, ports and logistics as well 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.

Forecast

No revision in earnings at this juncture. However, we expect our FY16E to be lowered by c.12% to RM286.9m due to higher interest costs incurred for the acquisition.

Rating

Maintain OUTPERFORM

Valuation

We maintain OUTPERFORM on MMCCORP but with a lower TP of RM2.87 after we assumed NCB is taken private due to higher debt incurred for the exercise. However, we believe that MMC will continue to realise its asset value in near-medium term, i.e. land sales and growing its port businesses while the long-term catalyst remains as the potential spin-off of its all its ports (PTP, Johor Port and NCB) under a single portfolio in the future. Our TP implies FY16E PER of 26.8x, which is just slightly higher with its 5-year’s 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 - 20 Oct 2015