Period

4Q15/FY15

Actual vs. Expectations

MMCCORP’s registered core net profit (CNP) of RM118.8m which came in below expectations, accounting for only 36% and 37% of our and streets’ full-year estimates, respectively.

The negative variance was mainly due to the timing difference on the recognition of its land sale, and lower-than-expected construction margin.

Dividends

None as expected.

Key Results Highlights

YoY, FY15 CNP was down by 63% to RM118.8m in tandem with revenue which saw a steep decline by 42%. The major decline in revenue was mainly due to the deconsolidation of MALAKOF, lower contribution from KVMRT1, whereas the main slump in profit was due to the absence of sizeable land sale. On the positive side, its Port division had done fairly well registering a revenue growth of 15%, while its ports pretax profit grew by 37% to RM347.0m (ex-fair value gain), driven by the increase in throughput handled at Pelabuhan Tanjung Pelepas Sdn Bhd (PTP) contributed by the continuous and positive progress from 2M alliance and effects from consolidation of NCB’s revenue.

QoQ, As for 4Q15, it recorded a core net loss of RM54.3m vis-à-vis a core net profit of RM72.0m despite a revenue growth of 42%. The main drag on its profitability was due higher financing costs (+11%), lower associate contribution (-43%), and also its construction division which saw a substantial decrease in its pre-tax profit by 76% to RM12.0m due to slower progress on KVMRT coupled with the group already completed the tunneling job previously.

Outlook

Near-medium-term prospects remain intact. We expect MMCCORP to focus on its three growing core businesses, namely: (i) construction, (ii) ports and logistics as well as (iii) land sales in Johor. The extra focus will be on its ports division due to the recent acquisition of NCB.

Forecasts

We lowered our FY16E core net profit by 23% to RM251.6m, as we adjusted the timing recognition of the land sale from Senai Airport City, while introducing our FY17E core net profit of RM316.6m.

Rating

Maintain OUTPERFORM

Valuation

While we maintain OUTPERFORM on MMCCORP due to its long-term prospect in growing its Port business and further unlocking of value of its land in Senai Airport.

However, we lowered our SoP-driven TP to RM2.72 (previously, RM2.86), as we updated our valuations for its other investments (i.e. MALAKOF and others).

Risks to Our Call

Below-than-expected new contracts assumption.

Slower-than-expected construction progress.

Delayed/scrapped MRT2 awards.

Slower-than-expected port activities.

Source: Kenanga Research - 24 Feb 2016