ARE values of sorts emerging from conglomerate MMC Corp Bhd’s varied businesses that encompass infrastructure, energy and utilities, airport, industrial land, water concession and ports?
Against the backdrop of its reasonably strong 2Q FY2020 in the face of the COVID-19 pandemic, AllianceDBS Research opined that the market may have overlooked one of the deepest value stocks on Bursa Malaysia.
“To put things into perspective, the current market value of just its Senai land is worth more than its current market capitalisation,” wrote analyst Chong Tjen-San in a company update.
Additionally some green shoots are also emerging for MMC with its Senai Airport seeing passenger movement recovering to 2,000/day (vs the movement control order low of 25/day but far from the peak of 40,000/day) while the Port of Tanjung Pelepas’ (PTP) throughput continues to recover and outperform its peers.
MMC posted only a slight decline in net profit for its 2Q FY2020 ended June 30, 2020 to RM128.1 mil (2Q FY2019: RM131.93 mil) but for the 1H FY2020 period, its net profit rose slightly to RM242.9 mil from RM220.42 mil in the same period of 2019.
For the immediate future, Chong pointed out a few main themes/catalysts for MMC:
- Proxy to infrastructure flows: Its current outstanding order book stands at RM4.9 bil.
Besides being a proxy to the Mass Rapid Transit 3 (MRT3) in partnership with Gamuda Bhd and the high speed rail (asset portion), MMC has emerged as one of the preferred contractors to work with the State of Terengganu for the East Coast Rai Link contract.
- MRT3: Chances of this project surfacing in Budget 2021 are high as it is a ‘shovel-ready’ project and would be an ideal project for the government to roll out to spur the economy. The most ideal scenario for MMC would be the award of this project on a turnkey basis to the MMC-Gamuda Joint Venture given its prior experience with the first two lines.
Besides this, MMC has submitted five tenders for various projects, namely the Petronas gas pipeline, water treatment plant, jetty expansion, Putrajaya rail and jobs related to the KLIA (Kuala Lumpur International Airport).
- Beneficiary of morphing of industrial warehouses and relocation of businesses to Malaysia: MMC has circa 487.6 hectares (ha) of industrial land remaining in the Senai Industrial Park and another 495.6 ha in Tanjuing Bin. Over the past few years, it has inked agreements with various parties at an average price of RM45-50 per sq ft, (psf) inclusive of infrastructure cost.
With the proliferation of more industrial warehouses and potential shift of Japanese businesses from China to Southeast Asia, MMC has seen a renewed increase in enquiries for its land.
The Senai Industrial Park land is worth RM2.4 bil at RM40 per sq ft vs. RM1.6 bil or RM30 per sq ft according to AllianceDBS Research’s sum-of-parts valuation.
- Ports turnaround: MMC’s port business did relatively well in its 2Q FY2020 as compared to its competitors. For transport and logistics, its 2Q FY2020 turnover fell by 9% year-on-year (yoy) to RM728 mil with pre-tax profit also easing by 5% yoy to RM208 mil.
Overall, the weaker profit numbers yoy was due to lower contribution from Kontena Nasional, Northport and Penang Port but this was offset by higher volume handled at PTP and gain on disposal of an asset held for sale at the Johor Port.
All-in, AllianceDBS Research maintained its “buy” rating on MMC with a target price of RM1.35.
At 11.45am, MMC was up 1.5 sen or 2.08% at 73.5 sen with 472,700 shares traded, thus giving the company a market capitalisation of RM2.24 bil. – Nov 2, 2020
