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More upside seen for MMC Corp, says MIDF Research

MIDF Research has upgraded its recommendation on MMC Corporation Bhd’s shares to “buy”, mainly on the back of the expected improvement in its ports and logistics segment.

The target price of MMC’s shares is left unchanged at RM2.63.

The research house said the bottom line of MMC’s ports and logistics segment could improve in the second half of financial year 2017 (1H17), supported by the performance of its Johor Port and Tanjung Pelepas Port.

“The ports and logistics segment registered a slight decline in before-tax profit of 2% year-on-year in 1H17. However, we believe that this segment could stage a healthy rebound in the second half.

“MMC’s two largest ports, Johor Port and Tanjung Pelepas Port are likely to record strong container and conventional throughput volume in 2H17. The former due to higher demand of conventional cargo at its Johor hinterland, while the latter due to a recovery in 2M alliance volume and new services by the Ocean Alliance,” said MIDF Research in a note.

The research house said that the company is anticipated to receive more progress billings at the end of the year.

MMC’s engineering and construction segment has been in a period of lull as progress billings for MRT1 have come to a tail end while contributions from the MRT2 project has yet to kick off.

“We also expect that the MMC’s role as a project delivery partner for the Sabah portion of the Pan Borneo Highway will provide an impetus for this segment moving forward,” it said.

With regard to MMC’s negotiation with Suria Capital Bhd to potentially acquire Sabah Ports, MIDF Research indicated that synergies could be derived from the acquisition, provided the price being attractive.

In the event of MMC Port Holdings Sdn Bhd (MMC Ports) acquiring a stake in Sabah Ports, the company could expand its port footprint in East Malaysia where it sees good growth potential.

On the other hand, MIDF Research said that MMC’s plans for the development of Carey Island Ports could be pushed back, since its competitor Westports Holdings Bhd received an approval-in-principal for an extension of its concession period recently.

“We gather that the overall investment required for the Carey Island port project to be large and spread over a 20-year timeframe. MMC Ports remains keen to participate in the Carey Island project, but maintained that further clarity would only be available further down the line, perhaps in 2019,” said the research house.

Recall, MMC Ports, Sime Darby Property Bhd and India’s Adani Ports and Special Economic Zone Ltd (APSEZ) signed a memorandum of understanding (MoU) earlier in April, to study the feasibility of constructing a container port in Carey Island, Selangor.
Source: The Star

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