INVESTMENT HIGHLIGHTS

• Suria Capital calls off proposed sale of Sabah Ports to MMC Corp

• Proposed stake of MMC Corp in Sabah Ports never disclosed

• MMC Corp to have greater focus on its existing ports

• Adjust valuation to reflect macro environment

• Maintain BUY with reduced TP of RM2.51 per share

Proposed acquisition called off. Suria Capital Holdings Berhad announced that it is no longer planning to sell a stake in its wholly owned subsidiary, Sabah Ports Sdn Bhd (SPSB) to MMC Corp’s subsidiary, MMC Ports Holdings Bhd. SPSB holds a 30-year concession to operate eight major ports in Sabah since 2004. Four of Suria Capital’s ports are located on the west coast of Sabah and four on the east coast.

Details was never disclosed. MMC Corp confirmed in August 2017 that it was already in talks with Suria Capital regarding the proposed acquisition of a stake in SPSB. However, details of acquisition price were never disclosed.

Our view. The proposed acquisition of SPSB would have enabled MMC Corp to have a presence in the Brunei Darussalam-Indonesia-MalaysiaPhilippines East Asean Growth Area (BIMP-EAGA). Nonetheless, we believe that the cancellation of the proposed acquisition would allow MMC Corp to focus on increasing competitiveness of its existing ports while completing the acquisition of the remaining 51% stake in Penang Ports.

Earnings forecast unchanged. We maintain our earnings forecasts as we previously did not impute earnings from the proposed acquisition of Sabah Ports into our estimates. Nonetheless, we are taking this opportunity to adjust our valuation to reflect the uncertain macroeconomic environment stemming from looming trade wars between the U.S and China. Hence, we are imputing a higher WACC of 8% (7% previously) into our DCF valuation for MMC Corp’s ports segment.

Maintain BUY with revised TP of RM2.51 per share. We reduce our SOP derived TP to RM2.51 (from RM2.72) as we tweak our DCF valuation for MMC Corp’s port segment. Our BUY call is mainly predicated on: (i) potential listing of its ports assets, (ii) expected synergies from full acquisition of Penang Ports and (iii) healthy construction order book of > RM10b.

Source: MIDF Research - 9 Apr 2018