Positive on MMC’s plans to list ports operations
KUALA LUMPUR: MMC Corporation Bhd’s (MMC) plans to list its ports operations have been viewed positively by analysts as the group is currently the largest port operator in the country.
To further bolster that position, MMC is also looking to expand its port profile in Sabah by taking over a stake in Sabah Ports from Suria Capital Bhd (Suria).
In a report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said, “The potential listing of MMC’s ports operations in the coming one to two years may serve as a re-rating catalyst, with the group currently holding the status of being the largest port operator in the country.
“In bolstering its prospects, MMC was recently in talks with Suria over a stake in Sabah Ports, which would potentially add another eight ports into the group’s profile.”
It noted that Sabah Ports is
The potential listing of MMC’s ports operations in the coming one to two years may serve as a re-rating catalyst, with the group currently holding the status of being the largest port operator in the country. Kenanga Research
currently wholly-owned by Suria (contributing more than 90 per cent of its revenue), which in turn has the Sabah state government effectively as its largest shareholder at 50.7 per cent stake.
“As such, we reckon that MMC would most likely end up with an associate’s stake, with Suria maintaining control over Sabah Ports.
“Taking Suria’s market cap as an indicative acquisition price, an assumed 30 per cent stake would arrive at a value of around RM187 million, and implying valuations of 10-folds price earnings ratio (PER) and 0.6-folds per book valuation, potentially contributing approximately an additional three to four per cent to FY17-18E earnings,” it highlighted.
KenangaResearcha;spbelieved the group should have the financial capacity to stomach an acquisition of around that value, with minimal impact towards its net-gearing (currently at around 0.8-folds) even if entirely funded by borrowings.
“Likewise, we also do not discount the possibility of any future acquisitions leading up to the listing of MMC’s ports operations,” it added.
Looking ahead, the research team also noted that MMC and Sime Darby Bhd (Sime) had previously entered into a Memorandum of Understanding to study the feasibility of developing an integrated maritime city in Carey Island.
“Although currently still in its early conceptualisation stages, if materialised, Carey Island may potentially be a game-changer for the local industries,” it commented.
With total port capacity reported at around 30 million TEUs per year, this represents almost twice of Port Klang’s current capacity, with the industrial city development to be the main driver of volume to meet this capacity, the research team said.
“At MMC’s level, we reckon that the materialisation of such a plan would see a potential capex ranging at RM30 billion to RM60 billion, with the timeline for the entire project totalling 20 years, being developed in phases,” it said.
Overall, Kenanga Research maintained its ‘outperform’ call of the stock.
“We are retaining our earnings forecasts for now, pending the release of its upcoming 2Q17 quarterly results later this month.
“While the ports segment is expected to stay relatively stable, risks in earnings swing may potentially come from slower-than-expected earnings recognition from its construction projects, and absence of land sale in Senai Airport City,” it added.