News

Yesterday, MMCCORP announced that they are taking over the RM1.5b centralized sewage plant project from the MMC-Sumitomo consortium, with contract duration of 59 months. To recap, the consortium was awarded the contract in 10-Oct- 2014, with contract duration of 72 months.

Comments

We were quite surprised with MMC taking over the entire central sewage plant project which was awarded to the MMC-Sumitomo consortium a year ago. Nevertheless, we are neutral as there is no earnings impact despite MMC taking over on the entire project. The remaining 49% of the project value of c.RM735.0m, based on our previous assumptions that MMC owns 51% stake in the consortium, is still within our orderbook replenishment assumptions of RM1.0b for FY15, and there remains c.RM265.0m orderbook replenishment assumption for FY15.

Assuming pre-tax margin of 7%, the project will contribute c.RM14.5m, representing 4% of our FY15- 16E bottom lines.

Outlook

Near-medium-term prospects remain intact. Postlisting of Malakoff, MMCCORP will continue to focus on its three growing core businesses, namely (i) construction, (ii) ports and logistics as well as (iii) land sales in Johor. To recap, MMCCORP has managed to secure a buyer for its 188 acres of land in early August for a total consideration of RM369.9m, which is still in progress.

Forecast

No revision in earnings.

Rating

Maintain OUTPERFORM

Valuation

We maintain OUTPERFORM on MMCCORP with an unchanged TP of RM2.87 that is based on SoP valuation. 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 longterm catalyst remains 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 than 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 - 12 Nov 2015