MARC affirms rating on MMC’s RM2.5b sukuk

The rating firm expects the diversified group’s ports and key business segments to exhibit a comparable YoY performance


MALAYSIAN Rating Corp Bhd (MARC) affirmed its AA-IS rating on MMC Corp Bhd’s RM2.5 billion Sukuk Murabahah programme with a stable outlook.

The stable outlook reflects MARC’s expectation that the diversified group’s ports and key business segments will exhibit a comparable year-on-year (YoY) performance.

According to MARC, this would enable MMC to continue generating fairly steady earnings. The group is expected to maintain its key financial metrics which are in line with the current rating band.

“MMC’s significant competitive strengths in the engineering, ports and logistics segments that have translated to strong earnings generation remain key rating drivers.

“This is supported by steady earnings from its energy and utilities segments. These strengths have enabled the group to weather the current uncertain economic environment that has been impacted by the Covid-19 pandemic,” it said in a statement last week.

MMC’s port segment has been largely cushioned by the pandemic crisis as reflected by a marginal growth of 0.9% YoY in the nine-month of 2020 (9M20) for the group’s combined container handling volume.

This was largely due to strong handling volumes recorded in the first quarter of 2020 (1Q20) which moderated the impact in 2Q, followed by a subsequent recovery in 3Q.

In light of the prevailing challenging economic and industry outlook, the group has also been selectively prioritising the nearterm capital expenditure of its ports, MARC noted.

Construction projects under the group’s engineering segment experienced a slowdown during the Movement Control Order (MCO) period, resulting in lower progress billings and revenue.

Earnings from this division were supported by improved margins due to MMC’s ability to manage its construction costs particularly for the Klang Valley Mass Rapid Transit Line 2 and Langat Sewerage projects.

As of end-June 2020, MMC’s construction orderbook of RM4.9 billion provides earnings visibility through 2022.

Its utility operations, undertaken by associate companies Malakoff Corp Bhd and Gas Malaysia Bhd, have remained stable.

Regulatory changes in the natural gas distribution mechanism and the domestic power sector are not expected to have a significant impact on the group’s utility business given its entrenched position in the sector.

Both entities have collectively upstreamed annual dividends of between RM90 million and RM166 million over the past four years.

For 9M20, MMC’s pretax profit increased by 7.6% YoY to RM366.7 million on revenue of RM3.2 billion, largely due to higher volume handled at its ports and improved contributions from its associate companies.

Consolidated cashflow from operations remained strong at RM1.44 billion, largely driven by ports operations.

Group leverage, which remains a moderating rating factor, declined slightly to 0.98 time (2019: 1.03 times) on lower borrowings of about RM10 billion, although the strong cash balance of RM2.8 billion translated into an improved net debt-to-equity of 0.70 time (2019: 0.79 time).

Meanwhile, MMC’s 30.9%owned Gas Malaysia on Dec 18, received the government’s directive on the average natural gas selling price for the distribution segment by its wholly owned subsidiary Gas Malaysia Energy and Services Sdn Bhd (GMES).

According to Gas Malaysia, the directive is for a period of one year beginning Jan 1, 2021 to Dec 31, 2021, with the average natural gas selling price to be determined every quarter.

“The applicable average natural gas selling price and the natural gas selling price by tariff category for GMES to its customer for one-year period will only be announced at the beginning of each quarter.

“The natural gas selling price shall include the transportation tariff of RM1.19 per million British Thermal Units (MMBtu), the legacy Gas Cost Pass Through of 62 sen per MMBtu and distribution tariff of RM1.88 per MMBtu as previously approved by the Energy Commission,” it said in a filing to Bursa Malaysia last Friday.

Gas Malaysia noted that the selling price determination is not applicable to sales of natural gas for natural gas vehicles and liquefied petroleum gas supplied in gas cylinders or in bulk.

The selling price determination will continue to contribute positively towards the financial position of the company for the financial year ending Dec 31, 2021 (FY21).

Gas Malaysia’s share price closed unchanged at RM2.60 last Friday, valuing the group at RM3.34 billion.

Gas Malaysia’s revenue for 3Q ended Sept 30, 2020, was RM1.72 billion, a decrease of 1.9% YoY, in line with lower average natural gas tariff despite higher volume of natural gas sold.

“While the group’s customers have been able to fully resume their operation under the Recovery MCO effective from June 19, the group’s financial performance for FY20 will be affected by the duration and the extent of the economic stimulus packages given/offered by the government during the Covid-19 pandemic, coupled with the pace of economic recovery in Malaysia and globally,” it said in a bourse filing recently.