MMC’s strong construction orderbook sustainable

The conglomerate’s financial outlook would be underpinned by its construction segment and potential work packages from current projects

By SHAHEERA AZNAM SHAH / Pic TMR

MMC Corp Bhd may face container throughput disruption in the near term, but will be supported by its strong construction order wins of over RM6 billion as the development of mega projects and ports resumes.

AmInvestment Bank Bhd (AmInvest) said the utility and infrastructure conglomerate’s financial outlook would be underpinned by its construction segment, which has an orderbook of RM6.44 billion and potential work packages from current projects.

“A steady pipeline of internal jobs such as port expansion and development of infrastructure should keep the company busy over the next three years,” it wrote in a recent note.

MMC is also eyeing more work packages from the PGU-I gas pipeline replacement project after having won the maiden work package when the project was first launched in the 1990s, it added.

Despite the Covid-19 pandemic, the future looks bright for the port industry in the region, Malaysia included, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound and outbound throughput for ports.

“There have been significant relocations of manufacturing bases by multinational companies out of China to the region due to 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 twenty-foot equivalent units (TEUs) annually, which is 50% higher than peer Westports Holdings Bhd’s capacity of 14 million TEUs annually,” the research house said.

However, it estimates the conglomerate’s earnings for the financial years ending Dec 31, 2020 (FY20), FY21 and FY22 to decline by 21%, 16% and 9% respectively, as a result of trade disruptions.

“We cut our FY20-FY22 net profit forecast and reduced our fair value by 25% to RM1.13 from RM1.50 for MMC, based on sum-of-parts valuation that value its ports division at a 16 times revised FY21 forecast earnings per share. “We roll forward our base year and widen our multiple discounts to 30% from 20% previously compared to its peer’s historical average to reflect its lower margins and growing consensus of a steep downturn in the global economy and trade due to the Covid-19 pandemic,” AmInvest said.

The V-shaped recovery in the global economy does not apply to the base-case scenario given the highly visible trail of “destruction” left by the pandemic, it added.

It expects container throughput at MMC’s run ports to contract 10% this year, taking a cue from the weakened global Purchasing Managers’ Index outlook and industry sentiment.

Copenhagen-based container shipping industry expert Sea-Intelligence ApS has forecast a 10% contraction in global container shipping volume this year, largely due to the slowdown in the Asia-Europe and trans-Pacific services.

“We believe the container throughput contraction will widen drastically in the second quarter of 2020 (2Q20) as the Covid-19 pandemic continues to wreak havoc along the global supply chain as well as disrupt port operations.

“Assuming the pandemic could be significantly contained in 2Q20, we are hopeful to see some gradual recovery in container throughput from the second half of 2020,” AmInvest said.

MMC’s earnings jumped 15.9% to RM255.17 million in FY19 from RM220.08 million in the previous year, underpinned by higher contributions from port entities, stronger results from Malakoff Corp Bhd, higher passenger volume at Senai Airport, reversal of provision no longer required at the double-track project, and gain on disposal of assets held for sale and lower administrative cost.

Shares of the group closed at 70 sen on Wednesday, valuing it at RM2.12 billion.