PETALING JAYA: Utility and infrastructure group MMC Corp Bhd is well positioned to capture companies relocating their manufacturing plants outside China and increasing investments in the manufacturing sector.
The Covid-19 fallout has led to disruptions in global supply chains and the US-China trade war has prompted many companies to consider relocating and diversifying their supply chains.
AmInvestment Bank Research expects the port sector to remain 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 multinational companies out of China due to the rising labour and land costs, exacerbated by the US-China trade war.
“MMC is well positioned to capitalise on these via its stable of five ports in Peninsular Malaysia with a total container handling capacity of 21.3 million 20-foot equivalent units (TEUs) annually, ” it said in a report.
It pointed out that MMC’s capacity is 50% higher than its peer namely Westports Holdings Bhd’s capacity of 14 million TEUs annually.
“We see value in MMC with its port business valued at 10 times forward price-earnings ratio (PE) on a stand-alone basis, ” AmInvest said.
Last October, MMC was reported to have revived an initial public offering plan for its port assets and is seeking to raise about US$1bil (RM4bil) from the exercise.
MMC owns ports including Pelabuhan Tanjung Pelepas and Johor Port in the southern state and Northport in Klang besides the Penang Port.
Overall, the research house pointed out that the port sector in the region has come out from the Covid-19 pandemic “relatively unscathed”.
Besides ports, MMC also has controlling interests in the country’s largest independent power producer Malakoff Corp Bhd and Gas Malaysia Bhd.
However, AmInvest has reduced its fair value on MMC to RM1.50 per share from RM1.56 previously to reflect its recent “downgrade” in fair value for Malakoff to RM1 per share from RM1.10 previously.
“We continue to value MMC’s seaport division at 16 times FY21 forecast earnings per share, which was a 30% discount to its peers’ historical average, to reflect its lower margins, ” it said.
On the recent partial stake sale in Jeddah-based container terminal operator Red Sea Gateway Terminal Co Ltd, AmInvest said it is “mildly positive” on the development.
It said the RM227.6mil proceeds from the disposal will improve MMC’s net debt and gearing of RM8.79bil and 0.94 times, respectively, as at Sept 30,2020, to RM8.57bil and 0.91 times, respectively.
“The impact of the partial stake disposal to MMC’s operating profits is immaterial. For the first month of FY20, Red Sea contributed less than 5% of the group’s core net profit, ” AmInvest said.
It added that MMC is paring down its stake in Red Sea from 20% to 12%, where the remaining 12% will be held indirectly via a 20%- owned associate that, in turn, will hold a 60% stake in Red Sea compared to an effective direct ownership before the exercise.
Red Sea has a capacity to handle 5.2 million TEUs annually and has signed a 30-year concession agreement with Saudi Ports Authority in 2019.