Analysts not overly concerned by MMC’s Johor Port additional tax assessment

KUALA LUMPUR: Analysts are not overly concerned by MMC Corporation Bhd’s (MMC) wholly-owned subsidiary Johor Port Bhd (Johor Port) having received an additional tax assessment.

In a filing on Bursa Malaysia, MMC announced that Johor Port filed Notices of Appeal to the Special Commissioners of Income Tax pursuant to Section 99 (1) of the Income Tax Act 1967, to appeal against Notices of Additional Assessment from the Inland Revenue Board of Malaysia (IRB) issued for the years of assessment 2016 to 2018 for additional income tax and penalties in the sum of RM39,321,927.66.

“In the worst case, assuming that Johor Port is unsuccessful and is liable to pay the full amount, this will erode MMC’s financial year 2021 (FY21F) earnings by 14 per cent but only shave its NTA by one sen from RM3.08 as at September 30, 2020 to RM3.07,” AmInvestment Bank Bhd (AmInvestment Bank) said.

“We are not overly perturbed by the latest development, which is likely to turn into a long-drawn legal process that drags on for years (without any actual impact on the bottom line).”

On another note,

AmInvestment Bank highlighted that the port sector in the region (Malaysia included) has come out from the pandemic relatively unscathed.

“Over the long term, its outlook is resilient, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound (feedstock) and outbound (finished product) throughput for ports.

“There have been significant relocations of the manufacturing base by multi-national companies out of China due to the rising labour and land costs, exacerbated by the US-China trade war.”

According to AmInvestment Bank, MMC is well positioned to capitalise on these via the group’s stable of five ports in Peninsular Malaysia with a total container handling capacity of 21.3 million twenty-foot equivalent units (TEUs) annually (50 per cent higher than its peer, Westports’ capacity of 14 million TEUs annually).

The research firm sees value in MMC with the group’s port business valued at 10-fold forward priceearnings on a stand-alone basis.