Within our, but below consensus, estimate. 9MY19 Core Net Profit (CNP) of RM142m (+200% YoY) came in within our estimate at 74%, but below consensus at 62%, of full-year forecast. We remain cautious on a potentially weaker second half for the group’s ports segment, against the backdrop of the current global uncertainties. No dividend was announced, as expected.

QoQ, 3QFY19 excluding one-off disposal gain (RM10.5m) and negative goodwill due to fair value gain following an acquisition of a subsidiary (RM18.3m), core CNP fell 26% to RM34.5m, no thanks to lower volume handled at Port of Tanjung Pelepas (PTP) and Johor Port Berhad (JPB), and higher operating expenses at Penang Port Sdn Bhd (PPSB).

YoY, 9MFY19 excluding one-off disposal gain (RM26.9m) and negative goodwill due to fair value gain following an acquisition of a subsidiary (RM18.3m), CNP came in at RM142m (+200% YoY) largely led by stronger performance from its ports and logistics segment (PBT: +10%), thanks to: (i) higher volume from Port of Tanjung Pelepas (+3% throughput growth), and full consolidation of PPSB’s revenue, and (ii) higher contribution from Malakoff attributed by improved contribution from its coal plants, lower barging and demurrage cost. This is further boosted by higher contribution from its construction business (+11% PBT) thanks to higher work progress for KVMRT-SSP Line.

Ports and MRT 2 the main earnings contributors. Going forward, MMCCORP’s earnings are anticipated to be largely buoyed by its ports operation and the construction and tunneling works for MRT Line 2. Currently, its ports portfolio consists of Port of Tanjung Pelepas (PTP), Johor Port, Northport, Penang Port and Tanjung Bruas Port. That said, we do not discount management continuing their pursuit to acquire additional ports to boost its profile as the largest port operator in the country. Meanwhile, the construction progress from MRT Line 2 is at 58% for the elevated portion, and 65% for tunneling portion as at June 2019, with expected completion in FY20. We gathered that while its construction order-book is currently at c.RM8.6b (90% from MRT Line 2), management is currently actively bidding for new projects in order to meet its targeted order-book replenishment of c.RM500m p.a.

Maintain MARKET PERFORM with an unchanged TP of RM0.970 based on 0.3x FY20E BV/share of RM3.24 which is in-line with its 5- year historical trough levels. Post-result, we made no changes to our earnings estimates. At this juncture, we deem our valuations to be fair as we await more earnings visibility and margin improvement in coming quarters.

Risks to our call include: (i) lower/higher-than-expected ports activities, and (ii) slower/faster-than-expected construction progress.

Source: Kenanga Research - 27 Nov 2019