INVESTMENT HIGHLIGHTS

• Forming pact with Royal Caribbean Cruise pursuant to Head of Agreement signed in March 2017

• MMC to invest RM93m to expand the Swettenham Pier Cruise Terminal

• Expected increase in passenger terminal has been factored in

• Maintain BUY with an unchanged TP of RM2.13 per share

Acquired 60% of SPCTSB. MMC Corporation Bhd (MMC) acquired 60% of Swettenham Pier Cruise Terminal Sdn Bhd (“SPCTSB”) for a cash consideration of RM6. The remaining 40% equity stake was acquired by Royal Caribbean Cruises Ltd (RCL). To recall, in March 2017, Penang Port signed Heads of Agreement with Royal Caribbean Cruises Ltd for a joint venture to redevelop Swettenham Pier Cruise Terminal (“SPCT”).

Further details of SPCT redevelopment. A total of RM155m will be invested by SPCTSB to upgrade the SPCT into a preferred port for international cruise operators which will take up to a year to complete. Types of upgrading works include the extension of the existing berths to approximately 660m from the current 400m which will enable to berth two mega cruise liners carrying over 4,900 passengers each at any one time.

Our view. We view the news positively as it will strengthen the capability of SPCT to for cater larger cruise ships at its facilities which will increase the number of international transit calls. In 2017, Swettenham Pier has seen 125 cruise ships called compared with 78 cruise ships in Port Klang. In tandem, the number of passengers at the Swettenham Pier terminal reached 1.2m people in the same year, the highest in 3 years. Moving forward, SPCT is expected to attract 1.8m passengers in FY18, indicating an annual growth of nearly 50%.

Earnings forecast. We are maintaining our earnings forecasts for FY18 and FY19 as we have already factored in the growth of passenger terminals into our estimates.

Maintain BUY with an unchanged TP of RM2.13 per share, based on sum-of-parts (SOP) valuation. Our BUY call is mainly predicated on: (i) valuations supported by the market capitalisation of its listed associates; Malakoff and Gas Malaysia; (ii) synergies from the full acquisition of Penang Ports propelled by economic activity at the northern region of Malaysia; and (iii) healthy orderbook above RM10b for the engineering and construction segment. Meanwhile, risks to our BUY call include: (i) further cancellation or reduction in value of construction projects; (ii) weak container volumes of its ports; and (iii) downward revision of its listed associates.

Source: MIDF Research - 7 Sept 2018