• 1HFY17 earnings missed estimates

• PTP and Johor Port showing signs of improvement

• Malakoff performed poorly in 2QFY17

• Post KVMRT1 projects taking off slower than expected

• Downgrade to NEUTRAL with lower TP of RM2.63

Earnings missed estimates. MMC’s registered 2QFY17 core PATAMI of RM66m (-29%yoy) which contributed to a 1HFY17 core PATAMI of RM121.2m (-26%yoy). The results trailed both ours and consensus estimates, representing only 30% of full year forecasts. We attribute the earnings miss due to lower than expected earnings in the energy and construction divisions.

PTP and Johor Ports recovering. In 2QFY17, PBT for the ports and logistics segment advanced +12%yoy to RM118m, narrowing 1HFY17 PBT decline to -2%yoy or RM242m. As expected, container volumes and conventional cargo picked up at PTP and Johor Port after facing operational issues in 4QFY16 and 1QFY17. The quarter also saw a maiden RM3m PBT contribution from MMC’s initial 49% stake Penang Port which concluded on 27th March 2017. The remaining 51% stake in Penang Port is scheduled to complete in October 2017.

Disappointing quarter for Malakoff. Malakoff recorded a -21%yoy decline in PATMI in 2QFY17, dragging down 1HFY17 PATMI to -6%yoy (from +18%yoy in 1QFY17). During the quarter, Tanjung Bin Energy faced a delay of 8 days for a planned outage in April 2017, followed by an unplanned outage in May 2017, which took a toll on earnings.

Projects post KVMRT1 taking off slower than anticipated. Construction PBT fell -26%yoy in 2QFY17 (-23%yoy in 1H). The decline was largely attributed to slower than anticipated progress billings for the KVMRT2 and Langat Sewerage projects.

Downgrade to NEUTRAL with lower TP of RM2.63, based on our sum-of-parts (SOP) valuation. We reduced our FY18 and FY19 earnings forecast by -24% and -30% respectively, factoring in lower earnings from the energy and construction divisions. Subsequent to our earnings revisions, we tweaked our SOP valuation to incorporate 1) revised fair values for Malakoff and Gas Malaysia, 2) lower ascribed value for the construction due to cut in earnings and lower land values in Senai and Tanjung Bin following the soft property market in Johor

Source: MIDF Research - 29 Aug 2017