INVESTMENT HIGHLIGHTS

• 9MFY18 earnings broadly in-line with expectations

• Reintroduction of Asia-North Europe loop in December 2018 by 2M Alliance to boost container volumes at PTP

• Energy and utilities segment supported by Gas Malaysia’s increase in volume of gas sold with higher tariffs

• Orderbook >RM10b to provide earnings visibility for construction segment

• Maintain BUY with a revised TP of RM1.35 per share

Broadly in-line with expectations. MMC Corporation Bhd’s (MMC) 9MFY18 normalised PATAMI of RM95.2m (-61.7%yoy) came in broadly within expectations, accounting for 69.0% of our FY18 earnings estimates.

Container volume growth at PTP and JPB. 9MFY18 PBT for the ports and logistics segment declined by -22.5%yoy mainly due to: (i) the - 6.3%yoy decline in container volume at Northport as customers shifted back to Westports; and (ii) lower contribution from RAPID Material Offloading Facilities (RAPID MOLF) at Johor Port Berhad (JPB). Nonetheless, the growth in container volume in PTP and Johor Port of +5.6%yoy and +6.1%yoy respectively in 9MFY18 cushioned the abovementioned matters.

Near term prospects of MMC’s ports. Moving forward, we reckon that the frontloading of cargoes ahead of the January 2019 U.S tariff deadline imposed on Chinese imports to support volumes at MMC’s ports in 4QFY18 in addition to the year-end festive season. More importantly, PTP remains to be the pillar of MMC’s stable of ports. We opine that the 2M alliance (of which Maersk is a part of) will likely reintroduce its AE2/Swan Asia-North Europe loop in December, where we could expect more calls at MMC’s Port of Tanjung Pelepas (PTP) and hence support container throughput volumes which we estimate to reach 9.2m TEUs in FY18.

Energy and utilities segment supported by Gas Malaysia Bhd. Malakoff Corporation Bhd (Malakoff) recorded a -29.0%yoy decline in PATAMI for 9MFY18 mainly due to: (i) lower capacity payment recorded by the Segari Energy Ventures (SEV) following the tariff reduction under the extended PPA revision and; (ii) lower fuel margin recorded at Tanjung Bin Power and Tanjung Bin Energy plant. However, the decline in the PATAMI for the segment was partially offset by contribution from Gas Malaysia Berhad (BUY; TP: RM3.50) which posted a +29.6%yoy increase in PATAMI due to the increase in volume of gas sold coupled with higher natural gas tariff.

Source: MIDF Research - 28 Nov 2018