AmInvest maintains ‘Buy’ on MMC port biz

The ports sector in the region had come out from the Covid-19 pandemic relatively unscathed


AMINVESTMENT Bank Bhd (AmInvest) has maintained its ‘Buy’ call on MMC Corp Bhd’s port business which is currently valued at nine times forward price-earnings on a standalone basis.

The investment bank said the ports sector in the region (Malaysia included) had come out from the Covid-19 pandemic relatively unscathed.

“Over the long term, its outlook is resilient, underpinned by global trade and investments in the manufacturing sector that generates 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 rising labour and land costs exacerbated by the US-China trade war,” the investment bank noted in a research note yesterday.

AmInvest has adjusted MMC’s fair value (FV) to RM1.49 a share and noted that the port is well-positioned to capitalise on these factors 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 (50% higher than its peer Westports Holdings Bhd’s capacity of 14 million TEUs annually).

The FV of MMC was based on sum-of-parts valuation, adjusting for a 3% discount to reflect a two-star environmental, social and governance (ESG) rating as appraised by AmInvest.

The investment bank added that the FV prices MMC’s ports division at 16 times for its earnings forecasts financial year ending Dec 31, 2021 (FY21F) (a 30% discount to its peers’ historical average to reflect its lower margins).

AmInvest noted that MMC has highlighted that the port sector’s outlook remains positive in FY21F as economies reopen.

It noted that Port of Tanjung Pelepas Sdn Bhd (PTP) registered a record container volume handled of 9.85 million TEUs in FY20, translating into an 8% growth year-on-year (YoY).

“MMC also expects a stronger container volume recovery at Penang Port Sdn Bhd underpinned by the return of container volume from southern Thailand following the reopening of borders for cargoes, coupled with its recently awarded free commercial zone status (which enables it to tap into the transhipment market),” it added.

Similarly, Northport (Malaysia) Bhd recorded the highest monthly volume of 310,500 TEUs handled in December 2020, backed by the return of major shipping lines such as Ocean Network Express Pte Ltd, Evergreen Marine Corp and Mediterranean Shipping Co

SA amid port congestion experienced at Westports and the Port of Singapore.

“This brought its total container volume handled to 2.7 million TEUs in FY20, translating into a 0.6% increase YoY.

“For the year, it received 108 ad hoc calls and observed nine diversions of services from Westports, as well as nine new services calling at the port,” AmInvest said.

MIDF Amanah Investment Bank Bhd has also kept its ‘Buy’ call on MMC, with a target price of RM1.30 per share.

It maintained its earnings estimate for FY21 on expectations that MMC’s full-year performance will meet its projection.

MIDF noted that MMC remains deeply undervalued and is a “no-brainer” pick as a recovery stock play.

“We postulate that with the equity market buoyed by vaccine sentiment and recovery expectation, MMC is ripe for value revision as the group has proven to be resilient amid the pandemic.

“This is given its diverse revenue streams and deep undervaluation vis-à-vis its asset base; the group book value stood at RM3.38 per share,” it said in a research note yesterday.

MIDF Research also noted that MMC is a deeply undervalued relative to its own historical valuation and peer group average, trading at only a balance brought forward (BF) of 6.5 times, which is below one standard deviation of its average five-year BF price-earnings at 10.5 times.

It opined that PTP’s role as a transhipment hub will act as a cushion for other MMC’s ports, which rely heavily on gateway containers.

Therefore, this will prevent MMC’s overall container throughput from declining by more than 10% annually.

“In addition, we expect MMC’s container throughput to recover in FY21, in line with International Monetary Fund’s projection of Malaysia’s GDP growth at 7.8% FY21.

“Furthermore, with AP Moller-Maersk AS, the largest container ship operator in the world, owning a 30% stake in PTP, we believe the shipping company will ensure PTP remains as its regional transhipment hub, ensuring the sustainability of TEU’s volume,” it noted.