MMCCORP - Additional gas supply from Petronas

Gas Malaysia has signed a second Supplemental Gas Supply Agreement with Petronas for an additional supply of 82 mmscfd natural gas. Accordingly, we have uplift our earnings forecast for FY2010 and FY2011 for MMC and upgrade our recommendation to BUY with target price of RM2.74.

Additional gas – MMC has announced that Gas Malaysia has signed a second Supplemental Gas Supply Agreement with Petronas for an additional supply of 82 mmscfd natural gas, in which the extra supply shall be effective until 31st December 2011.

Uplift earnings forecast for FY2010 and FY2011 - In our view, this should contribute positively to FY2010 and FY2011 earnings for MMC. After adjusting for 41.8% ownership of MMC in Gas Malaysia, we have raised our earnings forecast for MMC to RM681.2m in FY2010 and RM753.4m in FY2011.

Upgrade to Trading Buy with TP RM2.74 – In our Sum-Of-Parts valuation, we have adjusted our value of MMC's 41.8% ownership in Gas Malaysia to RM4312.0m. Accordingly, we have upgraded our recommendation to BUY with target price of RM2.74 after applying 30% discount. This represents possible 13.7% price appreciation as compared to yesterday closing price.

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