MMC’s stake sale in Saudi’s Red Sea Gateway raises hope for higher dividends

RSGT’s net profit contribution via MMC’s 20% stake stood at only RM8.9m in 2019 on the back of an RM487.m revenue


MMC Corp Bhd’s recent announcement to dispose of 8% of its direct-equity interest in Saudi Arabia’s Red Sea Gateway Terminal (RSGT) is viewed favourable given the terminal’s small contribution to the group’s performance.

MIDF Amanah Investment Bank Bhd (MIDF Research) in a note yesterday stated that RSGT’s net profit contribution via MMC’s 20% stake stood at only RM8.9 million in 2019 on the back of RM487.46 million revenue.

In 2018, the terminal’s net profit contribution came in at RM5.34 million on the back of RM371.68 million in revenue.

MMC currently holds a cumulative 20% equity interest in RSGT.

The value of the proposed disposal is equivalent to RM227.6 million and is expected to be completed in the first half of 2021.

“Given the poor price performance of the company, we believe unlocking RSGT’s value will only be mildly favourable.

“Once completed, we opine the proceeds from the disposal will improve the cash position of the company which could be used to power its working capital or even be disbursed back to shareholders via special dividends,” the report stated.

MIDF Research noted that with an average net profit contribution of RM10.9 million a year from financial year 2015 (FY15) to FY19, the slight trimming of MMC’s stake will translate into an additional cash of about RM200 million which can be allocated to higher yield investments for MMC in the future.

Additionally, the conversion of the cash into special dividends would equate into an additional seven sen or 5.7% yield, on top of its current full FY21F dividend estimate of 4.5 sen.

The research house maintained its ‘Buy’ call on MMC with an unchanged target price of RM1.30 per share. MMC’s share price closed half a sen or 0.65% higher at 78 sen yesterday, valuing the company at RM2.38 billion.

“We opine that Port of Tanjung Pelepas’ (PTP) role as a transhipment hub will act as a cushion for other MMC ports, which rely heavily on gateway containers. This will prevent MMC’s overall container throughput from declining by more than 10% annually.

“We further expect MMC’s container throughput to recover in FY21, in line with the International Monetary Fund’s projection of Malaysia’s GDP growth of 7.8% in FY21.

“With Maersk AS owning a 30% stake in PTP, we believe the shipping company will ensure PTP will remain as its regional transhipment hub, ensuring sustainability of twenty-foot equivalent units volume,” the note stated.

Key downside risks to its call include a prolonged Covid-19 outbreak, weaker than expected container volumes and downward revision of MMC’s listed associates.

MIDF Research noted that MMC is deeply undervalued, saying the company is ripe for value revision given its diverse revenue streams and deep undervaluation vis-à-vis its asset base of only RM3.06 per share.

“Even when compared to MMC’s peers, with average price-to-earnings (PE) ratio at 20.2 times, MMC’s valuation at PE of 8.7 times,” it stated.

Read our earlier report

MMC to dispose 8% of its stakes in RSGT for RM227.6m