The recent completion of the Penang port acquisition should pave the way for the listing of its port assets in 2018/19, and unlock more value for shareholders.
KUALA LUMPUR: Affin Hwang Capital Research has upgraded its call for MMC Corporation from Hold to Buy as it raised its realised net asset vaue (RNAV).
The research house said on Monday it had raised the target price from RM2.35 to RM2.90 following a revaluation its assets after the release of its 2016 results.
“We believe the current share price undervalues MMC’s assets, despite ascribing a 20% holding company discount to our RNAV.
“The recent completion of the Penang port acquisition should pave the way for the listing of its port assets in 2018/19, and unlock more value for shareholders,” it said.
Affin Hwang Research said although its RNAV values MMC’s port assets at RM3.8bil, it believes that the port could potentially be worth as much as RM6.6bil, if it is listed as a separate entity.
“Management has indicated that they plan to list the port assets by 2018/19, and they should be on schedule with the recent completion of the acquisition of Penang Port.
“However, determining the right capital structure for the new entity might take longer than expected, and could potentially lead to delays for the listing,” the research house said.
Affin Hwang Research said in its view, MMC is a less expensive indirect way for investors seeking exposure to Gamuda (RM5.15, Buy).
“Over 50% of our RNAV of RM2.90 is from the MMC-Gamuda JV, which is the Project Delivery Partner (PDP) for KVMRT 1 & 2, contractor for tunnelling work related to both lines and concessionaire for SMART.
“On our forecasts, MMC shares trade at 12.6 times 2017E PER, versus Gamuda’s 16x (on average FY17-18E EPS; July year-end). Gamuda’s key earnings driver relate to projects in the JV,” it said.
The research house said the discount on its land could lead to higher upside too.
It currently values the Senai Airport City at RM25/psf, which is at a sharp discount to the selling price of RM45-RM50/psf, which was transacted in 2015.
“We estimate that it will take MMC another 15-20 years to fully dispose of the 2,079 acres they have, hence the huge discount. However, if sales were to come in stronger than we expect, this would help to reduce the prescribed discount. The Senai Airport City land is 14% of our RNAV,” it said.
Affin Hwang Research said the near-term catalyst for the stock would be improvement in earnings delivery by each business segment, while a longer-term one would be the listing of its port business and continued disposal of its land bank.
However, it also cautioned that the key risks would be weaker-than-expected results from its associates, the inability to recognise land sales and delays in its port IPO schedule.
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