KEY INVESTMENT HIGHLIGHTS

• PTP to strengthen position as a transshipment hub by providing storage facilities to newly launched services by shipping liners

• As such, this should prevent MMC Corp’s overall container throughput from declining by more than 10% annually

• Major construction projects such as KVMRT-SSP line on track to be completed on time

• SAC received a lot of enquiries for sale of land during MCO period

• Earnings estimates unchanged

• Maintain BUY with an unchanged TP of RM1.17 per share

Management noted that the year-to-date container throughput at Port of Tanjung Pelepas (PTP) is approximately +2.0%yoy higher. With more than 90% of its container throughput coming from transhipment, PTP has appeared to be a strategic location for the temporary storage of containers by shipping liners. For instance, while Europe was under lockdown restrictions, containers heading from North Asia to Europe carried by shipping liners would search for locations to store the containers until it was time for shipment. As a result, major shipping liners namely, Maersk, CMA CGM and MSC have collaborated to offer a service called ‘delay-in-transit’, enabling shippers to delay shipment to the point of destination with a certain fee. To strengthen its position as a transhipment hub, PTP has taken opportunity to leverage on this service by promoting their container yard for storage space. All in, this should partially cushion the impact coming from the economic slowdown seen in other parts of the world.

Idle TBMs post completion of KVMRT-SSP line to possibly spur upcoming projects in the Klang Valley. During the initial MCO period, tunnelling works on the KVMRT-SSP line were granted an approval to continue in addition to other essential works categorised by MITI. Therefore, the management guided that the completion of the KVMRT-SSP line would be in time around 2QCY22 and 3QCY22. Post-completion of the KVMRT-SSP line, the tunnel boring machines (TBM) (costs around RM10-15m per machine) used for the project will be idle. As the TBMs deployed by the MMC-Gamuda JV are designed to handle the soil type found mainly in Klang Valley, the usage of these TBMs in other states is far-fetched. Therefore, it would be economical for the TBMs to be re-deployed in possible mega projects in the Klang Valley, such as the KVMRT 3.

Unlocking the value of land in SAC. To recap, MMC Corp had established its Senai Airport City (SAC) not too long ago. The last sale of land took place in August 2015 whereby three parcels of land totalling 188.7 acres (76.4ha) was sold to I-Park Sdn Bhd for RM370.0m cash, a price that is more than double its original purchase price of RM140.5m.

Other occupants/tenants of the SAC include Fuji Oil, Hershey’s Chocolate and EcoWorld. According to the management, there are 1,221 acres of remaining land bank in SAC. SAC has managed to sign SPAs with three parties covering 19.3 acres of land while another circa 82.6 acres in the pipeline. Assuming a price of RM50 per sqft, MMC Corp will potentially unlock revenue of around RM221.9m from sale of lands in SAC covering a total of 101.9 acres of land. Looking ahead, we do not discount the possibility of the potential land sale to take place in the coming years due to the limited land availability in Singapore, prompting businesses to shift part of their distribution or manufacturing hubs to SAC. In addition, SAC has been receiving enquiries regarding the sale of land during the MCO period.

Earnings estimates. We are maintaining our earnings estimates for FY20E/FY21F/FY20F.

Target price. As no adjustments were made to our earnings estimates, we are maintaining our target price at RM1.17 per share based on sum-of-the-parts valuation.

Maintain BUY. Although 2QFY20 will be a sluggish quarter amidst impact of lower consumption due to the Covid-19 pandemic, we opine that PTP’s role as a transshipment hub will act as a cushion for other MMC Corp’s ports which rely heavily on gateway containers. Therefore, this will prevent MMC Corp’s overall container throughput from declining by more than -10.0% annually. In addition, we expect MMC Corp’s container throughput to recover in FY21, in line with IMF’s projection of Malaysia’s GDP growth of 9% for the same year, the fastest amongst ASEAN-5. Other catalysts for MMC Corp include the possible reinstatement of the KVMRT3 project at a revised cost (possibly half the original price tag of RM45b). Key downside risks to our call include: (i) prolonged Covid-19 outbreak; (ii) weak container volumes of MMC Corp’s ports; and (iii) downward revision of its listed associate. All factors considered, we reiterate our BUY call on MMC Corp with an unchanged target price of RM1.17 per share.

Source: MIDF Research - 22 May 2020