MMCCORP had announced yesterday a sister port MOU between Northport and Weifang Sime Darby Port. Under the MOU, the two ports will cooperate in port management and facilitate halal trade shipment between Malaysia and China. We believe this to be a longer-term positive with neutral immediate earnings impact. As such, we made no changes to our earnings forecast, while also maintaining our OUTPERFORM call with unchanged TP of RM2.80.

MOU between Northport and Weifang Sime Darby Port.

Yesterday, MMCCORP announced that Northport has entered into a Memorandum of Understanding (MOU) with Weifang Sime Darby Port located in Shandong, China, to form a sister port relationship. Under the MOU, the two ports will involve cooperation and collaboration in port management and facilitation of halal trade shipment between Malaysia and China.

One Belt, One Road. The MOU was signed in conjunction with the 21st Century Maritime Silk Road the One Belt, One Road forum witnessed by Malaysia’s Prime Minister in Beijing two days ago. And while we applaud the move as a positive effort to further promote trade between the two countries, the two ports are also likely to benefit from longer-term positives through a fast-growing halal market in the region. Furthermore, Weifang Port is said to be actively expanding its business into the halal industry, through its close proximity to the One Belt One Road network, providing an added advantage from Muslim regions in China, namely Henan, Ningxia, Gansu and Xinjiang, where the Muslim population is estimated to be more than 30m.

No changes to earnings forecasts. We believe the MOU to be a longer-term positive, while immediate earnings impact to be largely neutral, with agreements still in a very infancy stage. As such, we are maintaining our FY17-18E earnings forecast, while also pending its upcoming 1Q17 quarterly results to be released later this month.

Maintain OUTPERFORM, with unchanged TP of RM2.80. With no changes made to our earnings forecasts, we maintained our OUTPERFORM call and TP of RM2.80, in view of its growing ports and logistics segment. We expect the segment to continue being the primary earnings driver for the group, with the group having also recently completed its full acquisition on Penang Port. A potential listing of its ports operations may also play as a positive rerating factor to unlock its full value. Our TP implies a forward PER of 17x, close to -1SD below its 5-year average of 24.5x.

Source: Kenanga Research - 16 May 2017