FY19 Core Net Profit (CNP) of RM201m (+36% YoY) came in within our estimate at 105%, but below consensus at 90%, of forecast. Moving forward, ports and MRT Line 2 remain as main earnings contributors. Nonetheless, as outlook remains clouded by the lack of earnings stability, we reiterate our MP call and TP of RM0.970 based on 0.31x FY20E BVPS which is in-line with its 5-year historical trough levels.

Within our, but below consensus, estimate. FY19 Core Net Profit (CNP) of RM201m (+36% YoY) came in within our estimate at 105%, but below consensus at 90%, of forecast. We remain cautious of a potentially weaker 1H 2020 performance for the group’s ports segment, against the backdrop of the current global uncertainties. No dividend was announced, as expected. However a decision on the final dividend has yet to be finalised.

QoQ, excluding one-off disposal gain (RM9m), 4QFY19 core CNP rose 57% to RM59m, thanks to higher volume handled at Port of Tanjung Pelepas (PTP) and lower operating expenses at Penang Port Sdn Bhd (PPSB).

YoY, excluding one-off disposal gain (RM36m) and negative goodwill due to fair value gain following an acquisition of a subsidiary (RM18.3m), FY19 CNP came in at RM201m (+36% YoY) largely led by stronger performance from its ports and logistics segment (PBT: +11%), thanks to: (i) higher volume from Port of Tanjung Pelepas, full consolidation of PPSB’s revenue, and (ii) higher contribution from Malakoff attributed to improved contribution from its coal plants, and lower barging and demurrage cost. This is further boosted by higher contribution from its construction business (+2% PBT) thanks to higher work progress for KVMRT-SSP Line. And a much lowered overheads - corporate & others – helped lift the bottom-line growth.

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. However, we remain cautious of a potentially weaker 1H 2020 for the group’s ports segment, against the backdrop of the current global uncertainties. 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 their profile as the largest port operator in the country. Meanwhile, the construction progress for 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 0.31x FY20E BV/share 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 seek for 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 - 26 Feb 2020