PTP files for oil spill damages. Yesterday, MMCCORP announced that its 70%-owned Port of Tanjung Pelepas (PTP) had filed a suit against Rising Star Shipping Sdn Bhd (RSS) and The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) Singapore Branch (the Club), in relation to the oil spill at PTP’s premises on 24 August 2016, causing oil pollution damage. RSS is the registered and beneficial owner of the vessel, whereas the Club is a mutual insurance association which offers protection and indemnity insurance to vessels’ owners, operators and charterers worldwide.

Claiming for RM31.9m of damages. Among other things, MMCCORP is said to be claiming RM31.9m together with a 5% per annum interest and other costs, against RSS and the Club as a result of losses from the oil spill. However, RSS had earlier on 17 February 2017, obtained declaration from the Kuala Lumpur High Court limiting its liability to the maximum amount of 4.51m Special Drawing Rights (equivalent to approximately RM25m). Any amount in excess to this will be claimed against the International Oil Pollution Compensation Fund in London. No changes to earnings forecasts. We maintain our forecasts given that there is no further court development regarding the case. And while a favourable ruling may positively impact MMCCORP, we believe the claims in discussion to be less-than-material at this juncture. Assuming a scenario of a successful claim of RM31.9m, this represents a one-off gain of around 6% of MMCCORP’s FY17-18E core net profit.

Maintain OUTPERFORM, with unchanged TP of RM2.90. With no changes made to our earnings forecasts, we maintain our OUTPERFORM call and TP of RM2.90, 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 KVMRT 2 project to also underpin construction earnings. A potential listing of its ports operations may also play as a positive rerating factor to unlock its full value.

Risks to our call include: (i) lower-than-forecasted throughput growth among the ports, and (ii) slower-than-expected earnings recognition from construction projects.

Source: Kenanga Research - 21 Jul 2017