INVESTMENT HIGHLIGHTS

• 9MFY17 earnings above estimates

• PTP and Johor Port continues to recover

• Malakoff performed better in 3QFY17

• Impairments hampered construction division

• Maintain BUY with adjusted TP of RM2.67

Earnings above estimates. MMC registered 3QFY17 core PATAMI of RM133.8m (+143%yoy) which contributed to a 9MFY17 core PATAMI of RM254.9m (+17%yoy). The results exceeded ours estimates, representing 81% of the full year forecasts while street estimates were within expectations at 75% of full year forecasts, respectively. We added back the one-off provision for impairment on SMART worth RM98.0m.

PTP and Johor Ports recovering. In 3QFY17, PBT for the ports and logistics segment advanced +22%yoy to RM127m, pushing 9MFY17 PBT higher by to +5%yoy or RM16m. Higher PBT in the segment was driven by higher container volumes and conventional cargo at PTP and Johor Port coupled with contribution from MMC’s initial 49% stake Penang Port which concluded on 27th March 2017. Meanwhile, the acquisition of the remaining 51% stake in Penang Port is still in progress.

Better quarter for Malakoff. Malakoff’s PATMI recorded a +25%yoy increase in 3QFY17, bringing 9MFY17 PATMI slightly higher by +0.4%yoy (from -6%yoy in 2QFY17). The lower SEV contribution due to the newly revised PPA effective 1 July 2017 was offset by the compensation from the settlement of dispute between TBP and IHI.

Impairments hampered construction division. Construction PBT fell - 93%yoy in 2QFY17 (-57%yoy in 9MFY17). The substantial decline was largely attributed to the one-off provision for impairment on SMART due to lower forecasted traffic volume. However, this was cushioned by higher progress billings from the KVMRT2 and the Langat Sewerage Projects.

Maintain BUY with adjusted TP of RM2.63, based on our sum-ofparts (SOP) valuation. We revise our FY18 and FY19 earnings forecast upwards by +9.5% and +11.8% respectively, factoring in higher earnings from the ports and logistics divisions. Subsequent to our earnings revisions, we tweaked our SOP valuation to incorporate 1) revised fair values for Malakoff and Gas Malaysia, 2) higher ascribed value for the ports and logistics division due to increase in earnings from the RAPID Material Offloading Facilities (“RAPID MOLF”) at Johor Port.

Source: MIDF Research - 23 Nov 2017