KEY INVESTMENT HIGHLIGHTS

• Normalised 9MFY19 earnings surged by more than 30%.

• PBT for the ports and logistics segment increased by +10.1%yoy in 9MFY19 due to throughput growth at PTP and JPB

• Higher work progress for KVMRT2 pushed earnings by +11.0%yoy during the same period

• Minimal disruption to potential earnings gap supported by acquisition of Alam Flora and disposal of MacArthur

• Earnings estimates unchanged as we expect 4QFY19 to pickup

• Maintain BUY with an unchanged TP of RM1.30 per share

Normalised 9MFY19 earnings surged by more than 30%. MMC Corp recorded a 9MFY19 net profit of RM187.1m. Excluding exceptional items such as compensation received for the oil spill at Port of Tanjung Pelepas (PTP) in 2016 and gain on disposals for assets, MMC Corp recorded a normalised net profit of RM141.9m (+48.9%yoy). This made up 62.4% and 61.5% of ours and consensus’ full year estimates respectively. Notwithstanding this, the results were within our expectations as performance in 4QFY19 will pick up due to: (i) the seasonal factors for the ports and logistics segment; (ii) the narrowing losses of its other business segments such as Senai Airport Terminal Services Sdn Bhd (SATSSB); and (iii) full-year consolidation of Penang Port’s (PPSB) revenue in FY19.

Growth seen at PTP and JPB. Revenue and PBT for the ports and logistics segment increased by +8.3%yoy and +10.1%yoy respectively. Performance of the segment was underpinned by the +3.0%yoy increase in container throughput at Port of Tanjung Pelepas (PTP) and +9.0%yoy at Johor Port Berhad. In fact, PTP contributed more than 90% to the absolute growth in container throughput during the period under review. This helped offset the small decline in container throughput at Penang Port (PPSB) and Northport during the same period. Based on our full year container throughput forecast of 9.41m TEUs for PTP, the 4QFY19 is expected to see a container throughput of more than 2.40m TEUs due to the upcoming festive season. Moreover, 4QFY19 started on a positive note with Malaysia’s manufacturing Purchasing Managers’ Index climbing to 49.3 in October 2019. Overall, we believe that seaborne trade will remain resilient compared to air trade, in line with DHL’s Global Trade Barometer (refer to Table 1).

Source: MIDF Research - 27 Nov 2019