MMC Corporation (MMCCORP)’s 9M16 CNP of RM277.7m is within our and consensus expectations at 75% and 70%, respectively. No dividends declared as expected. The outlook remains solid backed by steady performance from its port business and construction profits that are coming on-stream from MRT2. Maintain FY16-17E earnings. Maintain OUTPERFORM and TP of RM2.70.

9M16 core net profit of RM277.7m came in within our and consensus expectations at 75% and 70%, respectively. No dividends declared, as expected.

Results highlight. YoY-Ytd, 9M16 CNP was up by 48% despite a declining topline (-32%) due to the deconsolidation of MALAKOF in May 2015. Bottomline growth continued to be supported by the ports and logistics division, which saw impressive improvements of revenue and pre-tax profits by 48% and 35%, respectively, postacquisition of NCB in Dec 2015, as well as from land sales. QoQ, CNP declined by 30% on the back of declining PBT, mostly from the absence of insurance claims for MALAKOF, and excluding oneoff exceptional items of c.RM20m relating to write backs. Note that we have regarded the amount of insurance claim from MALAKOF in 2Q16 as part of core earnings as the amount is not disclosed in the quarterly announcement.

Outlook. Going forward, MMCCORP’s near-to-medium-term prospect remains bright backed by its steady port business following the acquisition of NCB, and pending the completion of Penang Port acquisition in FY17, which hinges on the disposal of its ferry business, which is also part of the condition precedent. Furthermore, the commencement of the tunnelling works for MRT2 amounting to RM15.5b will provide steady earnings contribution to the group for the next five years. As for its land sales in Johor, the Group has c.5,700ac of land, which the group plans on disposing gradually depending on market conditions. Note that we make no changes to our FY16-17E earnings of RM371.5-491.6m.

Maintain OUTPERFORM and TP of RM2.70. We reiterate our OUTPERFORM call on MMCCORP as we like its growing port business, which is flourishing alongside steady contributions from its construction division from PDP for MRT2 and Sabah Pan Borneo. As such, we make no changes to our SoP-driven target price of RM2.70 (refer to table below). Risk to our call includes slower-than-expected new contracts progress, slower-than-expected construction progress, delayed MRT2 award and slower-than-expected port activities

Source: Kenanga Research - 24 Nov 2016