Its 1HFY21 core PATAMI more than doubled, sequentially, to RM278.1m, which beat expectations, at 75%/82% of ours/consensus full-year estimates, respectively, owing to better-than-expected associates in 2QFY21, namely, Malakoff, and lower than-expected finance costs from OPR downward revision. As such, we upgrade our FY21E and FY22E core PATAMI by 42% and 48%, respectively. On the back of the MGO price of RM2.00/share, we remain with our ACCEPT OFFER recommendation. MMC’s board has resolved to table the proposed Selective Capital Reduction (SCR) to entitled shareholders of MMC for their consideration and approval after receiving approval from Securities Commission.

YoY, 1HFY21 core CNP excluding one-off sublease PTP land gain sale (RM18.7m) surged to RM278.1m (+114%), mainly due to: (i) stronger volume handled at PTP and Northport which coincided with the rapid re-opening of the world economy since the pandemic early last year, (ii) lower effective tax rate at 26.6% (1HFY20: 32.9%), (iii) lower finance costs (-20%) from OPR downward revision, as well as (iv) stronger associates contribution in 2QFY21, inadvertently, recording marginal drop in 1HFY21 contribution (-2%), mainly from Malakoff, due to: (i) the normalisation of local power earnings after higher O&M costs for planned outages and lower fuel margin at TBE and TBP in 1QFY21, (ii) Alam Flora’s PAT jumping 45% to RM37.0m from RM25.5m, and (iii) 121% surge in associate income to RM61.5m from RM27.8m on higher earnings from Al-Hidd IWPP on lower plant outages. These mitigated the lower contribution from Engineering segment which recorded lower revenue (-11%) from lower work progress from KVMRT-SSP line due to completion of tunneling works in 4QFY20, Langat Sewerage project nearing completion and impact of Covid-19. Note that, PTP and Northport registered 1HFY21 container volume of 5.56m TEUs (+20%) and 1.7m TEUs (+43%), respectively.

QoQ, 2QFY21 core CNP rose 63%, despite flat sales mainly contributed by: (i) stronger associates (+52%), namely Malakoff on abovementioned reasons, (ii) lower effective tax rate of 25.8% (1QFY21: 27.6%), and (iii) lower finance costs (-9%). This mitigated lower profit contribution from Ports & Logistics (-4%) and Engineering & Construction division (-2%). There were no lumpy earnings in this quarter such as the sale of Senai Airport City land recognized in previous quarter.

Outlook. Meanwhile, its recent privatization proposal notwithstanding, MMCCORP’s earnings are expected to be driven by its ports (especially PTP) and associate Malakoff, underpinned by economic recovery momentum riding on the resumption of the global and domestic trade activities 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. We gathered that while its construction order-book is currently at c.RM1.8b (90% from MRT Line 2, expected to be completed by 2022), management is actively bidding for new projects in order to meet its targeted order-book replenishment of c.RM500m per annum.

Raise FY21E-FY22E core PATAMI by 42% and 48%, respectively, to account for stronger associates and lower finance costs.

Accept offer of RM2.00 per share. On the back of the MGO price of RM2.00/share (translated into PER of 11x on FY22E EPS), we maintain our ACCEPT OFFER recommendation. MMC Board has resolved to table the proposed selective capital reduction (SCR) to entitled shareholders of MMC for their consideration and approval and the application has been submitted to Securities Commission Malaysia

Source: Kenanga Research - 24 Aug 2021