KEY INVESTMENT HIGHLIGHTS

• PTP is expected to continue performing well in 2H20
• “Ad hoc” strategy is a step in the right direction as PTP is one the major consolidation points in Southeast Asia
• SAC has managed to sign SPAs with three parties covering 19.3 acres of land while another circa 92.50 acres in the pipeline
• Maintain BUY with an unchanged TP of RM1.15

PTP’s steady performance to sustain in FY20. Management noted that the year-to-date container throughput at Port of Tanjung Pelepas (PTP) is approximately +1.0%yoy higher at 4.64m TEUs. This is a positive result given the expectation of earnings fallout from the pandemic. Moving forward, the company is committed to maintain current market position and secure higher ad hoc calls from existing clients, on top of stringent cost optimizations initiatives. We believe this “ad hoc” strategy is a step in the right direction as PTP is one of the major consolidation points in Southeast Asia and more than 90% of its container throughput is coming from transshipment.

PTP remains competitive against regional peers. Moreover, given the price competitiveness of PTP vis-à-vis Port of Singapore, and PTP’s capability to handle even large vessel (TEUs>18,000); we opine the ad hoc approach will bode well for MMC. The continued prudence in taking advantage of the current business climate by looking for ways to earn additional revenue is commendable, since liners are working towards strengthening their utilization rates (>80%) to sustain their own earnings. This only serves to add into the attractiveness of PTP as a port of choice.

Unlocking land value. Recall that, MMC Corp had established its Senai Airport City (SAC), an integrated industry park that is expected to service various industrial segments. 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 92.50 acres in the pipeline.

Assuming a price of RM50 per sqft, MMC Corp will potentially unlock revenue of around RM243.5m from sale of lands in SAC covering a total of 111.8 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.

Source: MIDF Research - 26 Aug 2020