1QFY20 Core Net Profit (CNP) of RM58m (+8% YoY) came in above our estimate at 31%, but in line with consensus at 25%, of forecasts. The positive variance is due to higher than-expected contribution from its associates Malakoff and Port of Tanjung Pelepas (PTP). Correspondingly, we raised our FY20E/FY21E net profit by 16% each. TP is also hiked from RM0.62 to RM0.775 based on 0.25x FY20E BVPS.

1QFY20 Core Net Profit (CNP) of RM58m (+8% YoY) came in above our estimate at 31%, but in line with consensus at 25%, of forecasts. The positive variance is due to higher-than-expected contribution from its associates Malakoff and Port of Tanjung Pelepas (PTP). No dividend was announced, as expected.

QoQ, 1QFY20 core CNP fell 2% due to no reversal of provision for the Double Track project, lower volume handled at Northport Malaysia and Kontena Nasional, and lower contribution from associates, while mitigated by higher volume handled at PTP.

YoY, 1QFY20 core CNP rose 8% to RM58m, thanks to higher contributions from PTP, Johor Port and associates namely Malakoff. However, lower volume handled at Northport Malaysia and lower contribution from logistics services (Kontena Nasional) offset a potentially better set of results.

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 market de-rating on the back of a bleaker economic outlook, both globally and for Malaysia. Currently, its ports portfolio consists of 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 about 60-70%, with expected completion in FY20. We gathered that while its construction order-book is currently at c.RM7b-8b (90% from MRT Line 2), management is actively bidding for new projects in order to meet its targeted order-book replenishment of c.RM500m p.a.

FY20E/FY21E net profit enhanced by 16% each due to better-than expected contribution from Ports and associate Malakoff.

Maintain MARKET PERFORM. We upgrade our TP from RM0.62 to RM0.775 based on 0.25x FY20E book value (-2.0SD below 5-year historical forward average) to reflect market de-rating due to a bleaker economic outlook, both globally and for Malaysia.

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

Source: Kenanga Research - 21 May 2020