MMC Corp Bhd
(Feb 14, RM2.37)
Maintain buy with a higher target price of RM3.50: MMC Corp Bhd is currently trading at a 60% discount to our sum-of-parts value. It has adopted the strategy of listing its key businesses, starting with Gas Malaysia Bhd in 2012 and Malakoff Corp Bhd in 2015 to unlock value.
This should provide at least a floor value for MMC. Based on Gas Malaysia and Malakoff’s market value, the market is assigning an unfair value to the unlisted businesses — ports, construction, the sole airport in Johor, water concession, and 1843.75ha land in Johor.
But this strategy has also led to valuation issues for the group, where the listing of Malakoff was arguably done at premium valuations that eventually widened the holding company’s discount.
MMC is looking to list its port division in 2018/2019. At present, Port of Tanjung Pelepas Sdn Bhd (PTP) and Johor Port Bhd are held directly under MMC while MMC Ports Sdn Bhd, a wholly-owned special purpose vehicle, was used to acquire NCB Holdings Bhd and more recently Penang Port (a 49% stake).
We understand that PTP and Johor Port will be transferred to MMC Ports to facilitate the listing while we also think MMC Ports will acquire the balance 51% in Penang Port prior to the listing. Hence, the total portfolio size will involve up to four ports. What is crucial now is to grow further and integrate its port business to share common functions which should create more scale and synergies and eventually result in a better valuation.
MMC should get better recognition as an infrastructure proxy this year with the successful execution of the mass rapid transit (MRT) Line 1 so far. Its current outstanding order book stands at around RM20 billion, of which the MRT Line 2 PDP and tunnelling works are the largest contributor.
In our view, this is the biggest risk for MMC; the Senai Airport Terminal Services Sdn Bhd acquisition in 2008 saw the share price being punished severely. In 2009, MMC’s major shareholder Syed Mokthar made donations from his stable of companies under a corporate social responsibility programme to Albukhary International University in Alor Setar. — AllianceDBS Research, Feb 14