INVESTMENT HIGHLIGHTS

• FY18 earnings of RM154.0m exceeded ours and consensus expectations

• PTP and JPB remain as growth drivers for the ports segment

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

• Order book >RM10b to provide good earnings visibility for construction segment

• Maintain BUY with a revised TP of RM1.37 per share

Well above expectations. MMC Corporation Bhd’s (MMC) FY18 normalised PATAMI of RM154.0m (-26.2%yoy) but came in above our and consensus’ expectations, representing a variance of more than 10 percent as compared to our and street FY19 earnings estimates.

Container volume growth at PTP and JPB. FY18 PBT for the ports and logistics segment declined by -14.0%yoy mainly due to: (i) the - 5.8%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 +7.0%yoy and +4.6%yoy respectively in FY18 cushioned the abovementioned matters.

Energy and utilities segment supported by Gas Malaysia Bhd.

Malakoff Corporation Bhd (Malakoff) recorded a -7.3%yoy decline in PATAMI for FY18 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) absence of compensation payment from dispute between Tanjung Bin Power plant and IHI Corp Japan. 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 +11.9%yoy increase in PATAMI due to the increase in volume of gas sold coupled with higher natural gas tariff.

Earnings visibility in construction segment. FY 18 PBT for engineering and construction (E&C) posted a staggering +49.0%yoy increase. It is noteworthy that the substantial gain was largely attributed to the higher progress billings from the KVMRT2 and the absence of the one-off provision for impairment in SMART seen in the previous year. Moreover, the construction segment currently has an order book of slightly RM10b as of end December 2018, even after the revision of the contract value of the KVMRT2 project. This is six times the construction revenue recorded in FY18.

Source: MIDF Research - 28 Feb 2019