Anal��sts continue to favour MMC despite removal of Pan Borneo contract
KUCHING: Analysts are continuing to favour MMC Corporation Bhd (MMC) despite the removal of Pan Borneo Highway (PBH) from the group’s orderbook.
MMC made an announcement in a filing on Bursa Malaysia on Monday regarding the termination of appointment as the project delivery partner (PDP) for the implementation of phase 1 of the PBH (Sabah).
According to MMC, Borneo Highway PDP Sdn Bhd (BHP) had on April 22, 2019 received notification from the federal government terminating the PDP agreement of April 11, 2016 and the supplemental PDP agreement of January 19, 2018 entered into by BHP with the federal government and the Sabah state government.
“The termination is on the ground of national interest and is to take effect on the expiry of five months from 22 April 2019,” the filing read.
“BHP is 40 per cent owned by UEM MMC Joint Venture Sdn Bhd (UMJV), which in turn is a jointly-controlled entity of MMC. MMC’s effective interest in BHP, via UMJV, is 20 per cent.”
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted that following the removal of PBH, MMC Corp’s orderbook will decline from RM11 billion as of December 31, 2018 to around RM9 billion.
“While there is an opportunity for MMC to bid as a contractor under the new model of PBH, we opine that chances are slim for MMC under the possible new turnkey model under which the federal Government will be giving contracts to the Sabah state government to manage,” MIDF Research said.
The research arm noted that while the termination of the PBH PDP puts a dent on the group’s construction orderbook, MMC is actively bidding for a few large scale infrastructure projects which could act as a buffer for its construction orderbook.
“The target is one to two projects a year with an individual value ranging from RM250 million to RM500 million.
“It is also notable that the estimated orderbook of around RM9 billion under the absence of PBH is nearly five-fold the construction revenue in financial year 2018 (FY18).”
Overall, MIDF Research is confident that MMC will clinch new construction projects which will act as a buffer for the group’s construction orderbook.
“We continue to favour MMC due to the valuations supported by the market capitalisation of its listed associates Malakoff and Gas Malaysia and synergies from the full acquisition of Penang Ports supported by the container terminal business and the cruise terminal operations in collaboration with Royal Caribbean Cruises Ltd driven by the growth in tourism in Penang.”