INVESTMENT HIGHLIGHTS

• 1QFY17 earnings declined to the ports segment

• PTP is in recovery mode after facing technical issues in 2016

• Both Malakoff and Gas Malaysia performed fairly well

• Engineering and construction order book intact

• Maintain BUY with unchanged TP of RM2.98

Lower earnings from ports. MMC reported 1QFY17 core PATAMI of RM55m (-21%yoy) mainly due to lower PBT contribution from the ports & logistics division. This formed 13% of our FY17 forecast, which we deem to be in line as the first quarter is usually its weakest. Against consensus forecast, earnings accounted 11% of estimates.

PTP in recovery mode. First quarter revenue for the ports and logistics segment grew +3.3%yoy. However, PBT dipped by -13%yoy as higher throughput handled at Johor Port from the Rapid Pengerang project was insufficient to offset lower container volumes at PTP. Recall that PTP faced a hiccup in port efficiency in 2016 due to a shortage of foreign workers which has since been resolved. Coupled with a major reshuffle of port alliances, 1QFY17 would likely be a transitional quarter, in our view.

Better performance from Malakoff. Malakoff recorded a +18%yoy increase in PATMI as it benefitted from better performance by its associate, in particular KEV, Shuaibah and Hidd Power. Meanwhile, Gas Malaysia’s PATMI rose +10%yoy due to 1) increase in volume sold, 2) higher tariffs and 3) lower administrative expenses.

MRT1 tunnelling and PDP at its tail end, leading to a reduction in revenue and PBT by -15%yoy and -14%yoy respectively. Positively, however, is the stemming of write-offs on associate Zelan’s receivables arising from a past project in the Middle-East which is nearing resolution. Looking forward, the segment will be anchored by the 1) Langat 2, 2) Rapid Cogen and 3) KVMRT-SSP projects.

Maintain BUY with unchanged TP of RM2.98. We derive our TP based on our sum-of-parts valuation RM2.98. We continue to rate MMC a BUY as we believe the company’s portfolio of assets could soon be ripe for monetisation. Our BUY call is premised on: 1) a potential listing of MMC Ports which is the largest port operator in Malaysia; 2) steady contributions from the energy segment; and 3) healthy construction order book which provides earnings visibility up to FY2019.

Source: MIDF Research - 30 May 2017