KUALA LUMPUR: MMC Corp Bhd remains one of the most favoured stocks for some research houses given the resilient port sector amid the Covid-19 crisis.
Analysts said MMC‘s ports and logistics segment would continue to benefit from the resilient outlook in the region’s port sector when the Covid-19 pandemic is over.
This will be underpinned by investments in the manufacturing sector that generates tremendous inbound and outbound throughput.
AmInvestment Bank Bhd said the weak currency and cheaper port charges were also positive for the port operator as shipping lines are seeking ways to rationalise their cost structures amid a tough operating environment.
“We continue to like MMC due to its cheap implied valuation for the group’s port business (14x forward PE),” it added.
MMC is the largest domestic container terminal operator, according to Malaysian Rating Corp Bhd (MARC).
The status has been strengthened with the addition of Penang Port.
Its key port Pelabuhan Tanjung Pelepas (PTP) in Johor remains one of the top 20 busiest ports in the world, MARC added.
MMC ports handled about 14.3 million twenty-foot equivalent units (TEUs) in its financial year 2019, which made it the largest port operator in the country.
“Overall, the impact from shifts in global shipping alliances on the group has been largely offset by volume improvement in dry and liquid bulk handling, local container shipment for Northport and cargo handling for Johor Port and Penang Port,” MARC said.
MIDF Research continues to favour MMC as it viewed sea ports to be more resilient than air freight.
Apart from that, MMC’s valuation is supported by the market capitalisation of its listed associates Malakoff Corp Bhd and Gas Malaysia Bhd.
Malakoff’s completion of Alam Flora Sdn Bhd (AFSB) acquisition in December 2019 had enabled a one-month revenue recognition in MMC’s latest fourth quarter (4Q19) results, MIDF Research added.
“On an annual basis, AFSB is expected to contribute a net profit of around RM70 million to RM90 million, mitigating the annual loss of income of RM40 million-RM60 million from MacArthur Wind Farm disposal,” it said.
DBS Group Research said MMC’s recently-released 4Q19 results had beaten expectations.
MMC booked a 4Q19 headline net profit of RM68 million, a 43 per cent contraction year-on-year and two per cent growth quarter-on-quarter. This brought full-year net profit 16 per cent higher to RM255 million.
“Stripping out some one-offs namely reversal of provisions for double tracking project of RM18 million and provision for impairment of receivables for its Jazan project in Saudi Arabia of RM54 million and net gain from sale of asset of RM34 million, the resulting core net profit of RM253 million would have trounced our and consensus estimates.”
DBS Research said MMC’s ports continued to do well.
For transport and logistics, their full-year turnover increased six per cent to RM3.19 billion with pretax profit rising 11 per cent to RM460 million.
DBS Research said MMC was still actively pursuing the port business listing but the timeline was likely in 2021.
“The current focus would be to ensure stronger earnings recovery for its port business which has been dragged down by poorer financials for Northport,” it added.
DBS Research kept its “buy” rating on MMC with a target price of RM1.49.
It believes better earnings delivery would lead to a further re-rating.