Investment Highlights

• We maintained our forecasts and fair value (FV) of RM1.68 based on sum-of-parts (SOP) valuation (Exhibit 3) adjusted for a 3% discount to reflect a 2-star ESG rating as appraised by us (Exhibit 5). The FV values MMC’s port division at 16x FY21F EPS (a 30% discount to its peers' historical average to reflect its lower margins). Maintain BUY.

• MMC's 1QFY21 core net profit of RM105.9mil (adjusted for gains from sublease of land at PTP) came in at 25% and 31% of our full-year forecast and full-year consensus estimates respectively. We consider the results within our forecast but above market expectations.

• MMC’s 1QFY21 core net profit more than doubled thanks to higher volume handled at PTP and Northport and lower finance costs incurred during the quarter. These were partly offset by the lower work progress at the MRT2 (mainly due to completion of tunnelling works and the impact of Covid- 19), lower contribution from its associate, particularly Malakoff (attributed to the lower contributions from its coal plants as a result of decline in applicable coal price, decrease in electricity despatch from the Segari power plant, higher operation and maintenance costs and lower share of results from associates, mainly Shuaibah assets in the Middle East), lower passenger and cargo volume at Senai Airport, and lower volume handled at Penang Port.

• Looking ahead, MMC will continue to invest in its ports infrastructure and focus on resource optimisation to improve operational and cost efficiencies. On the construction side, the group will continue to bid for new jobs on the back of anticipated economic recovery following the wide rollout of vaccination, while focusing on the execution and timely completion of its existing projects.

• 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.

Source: AmInvest Research - 25 May 2021