MMC Corporation (MMC MK, Trading BUY, FV: RM3.70, Last Close: RM2.80)

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 3.70

Our  trip to the MRTvisitor center and  along  the alignment of half of the Sungai Buloh-Kajangline was an eye opener as we got to see at eye level, the location of thestations and how the line would run. This rare insight gave us an appreciation ofthe route's passage through potentially high traffic areas such as colleges, commercialcenters and retail malls. We see the project progressing smoothly once the landacquisition issue is resolved as it is in the interest of all parties that theMRT gets off the ground. We maintain a Trading Buy call on MMC as the news flowon the company will continue to be strong.

An enlighteningvisit. Last week, we joined a site visit hosted by MMC at one of the KlangValley Mass Rapid Transit (MRT) visitor centers in TTDI Plaza. The visit was enlighteningas the centre was replete with information relating to the rationale for the MRT,its role in enhancing public transport in the Klang Valley as well as therelevant facts and figures on the transport system. Our hosts were En ZamriHasan, GM Public Relations, KV MRT and En Maslan Othman, MMC's Director ofProjects. After a briefing by En Maslan, we hopped on a bus which took us alongthe MRT alignment from Sungai Buloh up to the point where the line would gointo an underground tunnel in Semantan. Along the way, we were briefed on thelocation of the stations.

A well planned route.Unlike the LRT which winds its way through some under-utilised stations, theMRT's route seems well planned indeed, as its stations will be close to locationswhich will definitely generate heavy traffic such as SEGi College, HELP College,the Section 16 commercial center and Sunway Giza. The appointments of En Zamriand En Maslan on the MMC side of the MMC-Gamuda JV to handle the MRT job is aplus point as both gentlemen were previously  instrumental inbuilding up Gas Malaysia to the successful company it is today. With anestimated 80% of the contracts likely to be awarded by July, the  MRT's progress seems to be  picking upsteam, especially with the arrival of the tunnel boring machines (TBM) due byyear-end. We see a project of this nature as  unlikely to be derailedregardless of the outcome of the upcoming General Election.   

Maintain Trading BUY.The emergence of a RM360m law suit filed by some prominent personalitiesseeking compensation from the Double Track Railway MMC-Gamuda JV for contractsnot awarded may raise some questions but we do not see this  action coming to  a quick resolution. Rather, we believe thecase may not have an eventual impact on MMC's bottomline. Meanwhile, there arerumours that the Gas Malaysia IPO may be further delayed and as such, may notmeet its 2Q2012 listing deadline although we remain confident it should belisted within 2012. As such, we maintain our Trading Buy call on MMC, with ourSOP fair value unchanged at RM3.70.

Source: OSK188

MMCCORP (FV RM3.70 - TRADING BUY) Corporate News Flash: The Pieces Come Together

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 3.70

THE BUZZ

Business Times reported that Penang Port SB (PPSB) has beenshown a letter from the Ministry of Finance and directed by the Government tocooperate with Seaport Terminal (Johore) SB, a company linked to Tan Sri SyedMokhtar Al-Bukhary. Nonetheless, PPSB has not been officially notified of atakeover.

OUR TAKE

Port users express concern. The paper also  quoted a news portal as  reporting that Syed Mokhtar's officials arealready running the port. When contacted by the paper, Penang FreightForwarders Association (PFFA) president Krishnan Chelliah said  the Governmentshould reconsider the sale and engage with port users 'before deciding on amove as drastic as this.'' He also said the takeover by Syed Mokhtar woulddowngrade Penang port to a feeder port.

Details on the port.Penang Port basically handles port and ferry services for Penang.

These include managing:

- Swettenham Pier Cruise Terminal

- Tanjong City Marina

- Pangkalan Raja Tun Uda Ferry Terminal

- North Butterworth Container Terminal

- Butterworth Wharves

- Vegetable Oil Tanker Pier

- Prai Bulk Cargo Terminal

- Pangkalan Sultan Abdul Halim Ferry Terminal

- Bagan dalam Dockyard

- Prai Wharf

Based on its 2010 Annual Report, Penang Port handled 1.1mTEUs and 28.8m tonnes of throughput, which puts it in roughly the same leagueas Johor Port. However, its PBT was only RM11.1m in 2010 vs Johor Port's PBT ofRM155.1m in the same year while its revenue was RM312.1m vs Johor Port's RM548m.We believe this was largely due to the loss making nature of ferry services.

Uncertain of exact plans for the port. If indeed this pieceof news is true, it remains to be seen what Syed Mokhtar plans to do withPenang Port given  that he also  controls both the Port of Tanjung Pelepas(PTP) and Johor Port. We believe it is likely that a takeover of Penang Port bySyed Mokhtar will eventually see the port being injected into his flagshipcompany, MMC, which is the current owner of Johor Port and PTP. The 3 ports maythen be brought under a single entity which could then proceed to an IPO afterJohor Port's container operations are transferred to PTP. This will bode well  for MMC as it should be able to unlock somevalue at both Johor Port and PTP as well as allow easier fund raising for thestill fast growing PTP.

A LogisticsMasterplan. We also see the control of Penang Port as part of a logisticsmasterplan by MMC, which is currently evaluating the takeover of Keretapi TanahMelayu Berhad (KTMB). With both the northern and southern ports in PeninsularMalaysia potentially becoming part of the group, MMC could perhaps derive someeconomies of scale from large scale logistics operations. In any case, if thetakeover of Penang Port and KTMB materializes, MMC would  be the only private company in Malaysia withsuch a diverse and strategic asset base, which makes it a direct proxy to thehealth of the Malaysian economy. While it is too preliminary at this junctureto estimate the bottomline impact (if any) to MMC from a potential takeover ofPenang Port, we note that the news flow on the company remains strong and MMCremains a Trading BUY call for us, with an unchanged SOP FV of RM3.70.  

Source: OSK188

MMCCORP (FV RM3.71 - TRADING BUY) Corporate News Flash: Wins MRT Tunnelling Contract

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 3.71

THE BUZZ

Various media sources reported that MRT Corp has officiallyconfirmed that the MMCGamuda joint venture has won the tunnelling job for theKlang Valley My Rapid Transit (KV MRT) Sungai Buloh-Kajang (SBK) line with itsbid at RM8.2bn. The decision was made at a One Stop Procurement Committeemeeting chaired by Prime Minister Datuk Seri Mohd Najib Razak in Parliamentyesterday.

OUR TAKE

Surprise, surprise, surprise.  Although neither MMC nor Gamuda  has made any announcement on Bursa Malaysiain relation to the said contract, we believe MRT Corp's  announcement is likely to be genuine giventhe  official  statement from the corporation. We deem theannouncement within our expectations, with MMC's portion working out to beRM4.1bn given its effective 50% stake in the JV with Gamuda. We are notsurprised that the JV has emerged as the ultimate winner, given its expertiseand experience with the Stormwater Management and Road Tunnel (SMART) project,the tunnelling works for the Double Track Rail project as well as the SwissChallenge condition favouring local contractors over foreign parties.

Details on thepackage. The quantum of the said job is at the higher end of our previousestimate  of RM7bn-RM8bn. Works areexpected to start as early as 2Q12, while the target completion date has beenset for June 2017.

Maintain Trading BUYcall. The clinching of this contract by the MMC-Gamuda JV is certainlywithin our expectations. The amount  ofRM8.2bn came in  slightly above our earlierexpectations of M8bn, but this only has the effect of bumping up our SOP fair value  on MMC from RM3.70 to RM3.71. To note that in our SOP calculation, MMC's Engineeringbusiness (namely the Double Track, the MRT PDP and the MRT tunnelling) comprises23% of the total SOP value given our high 16x PER multiple ascribed to the sector.

Source: OSK188

MMCCORP - On steady ground

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.70

Market Focus - Selective opportunities

Upgraded earnings by 3% (2012) and 2% (2013); positive surprises outweighed disappointments. Liquidity may provide near-term support for markets but we foresee limited upside for index with our year-end KLCI target of 1,590. We like stocks with specific catalysts, bottom-up picks, and selected defensive names. Key picks: Maybank, Gamuda, Alliance Financial Group, WCT.



MMC Corp; Buy; RM2.74
Price Target: RM3.70; MMC MK
On steady ground

Iskandar proxy ' realising land values. Malakoff listing post Gas Malaysia? Buy, TP of RM3.70 based on 20% discount to SOP.

Source: HwangDBS Research 2 March 2012

MMCCORP (FV RM3.70 - TRADING BUY) FY11 Results Review: Full Comparison Unavailable

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 3.70

We believe MMC's profits were within expectations although arestatement of historical records due to the adoption of Int IC4 makes a propercomparison difficult. Nonetheless, the  reported numbers show thatthere  were no major provisions fromassociates during the quarter, thus boosting profits from all 3 major business segments. We maintain ourforecasts pending greater clarity from the company's  analyst briefing today.  The stock's catalysts are the upcoming listing of Gas Malaysia, rumours that MMC maybuy Tan Sri Ananda Krishnan's power plants and the award of the MRT tunnelingproject. Still a good Trade.

Within expectations,probably. Proper comparison MMC's full year results versus our expectationsand consensus has been made difficult as the company has had to restate itsprevious earnings due to the adoption of Issues Committee Interpretations 4 (ICInt.4) to  determine  whether an arrangement contains a lease. Assuch, we estimate that MMC's PBT is within our forecast although its net profitwas above our forecast by 11% and in line with consensus. We do not have therestated 9MFY11 or 9MFY10 numbers for a proper comparison. The higher than expectednet profit was due to a lower than expected tax rate as the  adoption of IC Int.4 probably led to a  positive tax charge for FY11,just as it did in the company's restated FY10.

EBIT at all 3segments  higher.  Energy and Utilities earnings rose as therewas no provision for Kapar while Tanjung Bin saw more dispatch given theshortage of gas in the country. Transport and Logistics  were better as PTP's volumes rose 16% while Engineering earnings jumped as there wasno major provision for Zelan. Only the higher than expected finance chargesmoderated these improvements. Excitement should be in Energy, Engineering. Forthe Energy side, MMC will book in some RM307m worth of proceeds from thelisting of Gas Malaysia (not factored into our forecasts) as well as beginconstruction of its RM6.7bn 1000MW Tanjung Bin power plant extension. Also the1^st Generation Power Purchase Agreements (PPA) are being renegotiatedand this will involve Segari. Finally, MMC could be in the running to acquire Tanjong's  extensive power plants  in Asia and Africa as Tan Sri Ananda Krishnan is rumoured to be sellingout. On the Engineering side, 2012 should see the booking of the Klang ValleyMRT project development partner profits. 

Maintain Forecasts,Still Trading BUY.  Given  the uncertainty  over  the adjusted figures, we largely maintain ourforecasts for now. The excitement for MMC is not so much in its profits (PER of23x for 2012) but rather the strong news flow surrounding the company. As such,we maintain our Trading Buy call pending today's analyst briefing.  Our SOP FV is unchanged at RM3.70.

Source: OSK188 

MMC shares stay flat at midday

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.70

MMC Corp Bhd saw major development in two of its subsidiaries yesterday but there was hardly any movement in its share price.

It was flat at RM2.78 at the end of the morning session today after opening two sen higher at RM2.80.

Yesterday, its unit, Gas Malaysia Sdn Bhd, signed a new agreement for the sale and purchase of dry gas with Petronas for a 10-year period from 2013, with the option to extend for another five years.

HwangDBS Vickers Research said the absence of the agreement was the key stumbling block for Gas Malaysia's listing, originally slated for the first quarter, but now scheduled for the second quarter this year.

"Hence, this piece of news will certainly pave the way for the listing soon," said the research house, which put Gas Malaysia's valuation in MMC's sum of part at RM2.8 billion.

HwangDBS Vickers Research put RM3.70 target price per share for MMC.

The second major news from MMC was Tanjung Bin Energy Sdn Bhd entering into a RM5 billion engineering, procurement and construction contract with a consortium comprising Alstom Power Systems SA, Alstom Services Sdn Bhd, Mudajaya and Shin Eversendai Engineering.

The contract is to build a 1,000MW power plant in Tanjung Bin, Johor, which is expected to be completed in 48 months from the notice to proceed.

Malakoff Corporation Bhd's power generation capacity will increase by 20 per cent to 6,020MW.

HwangDBS Vickers Research expects the cost synergy for the new power plant, with Malakoff's adjacent 2,100MW plant, enabling the power generation capacity to be achieved in a shorter period. -- Bernama

Signs Gas Supply Agreement

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 3.70

UTILITIES (NEUTRAL) Sector News Flash: Gas Price Conundrum

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: OSK

Price Call: HOLD

Target Price: 6.36

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: BUY

Target Price: 3.70

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD

Research House: OSK

Price Call: BUY

Target Price: 17.00

THE BUZZ

The Energy Commission (ST), Petronas and the EconomicPlanning Unit (EPU) are discussing the final recommendation to the Cabinet  on the price of gas. Sources told StarBizthat meetings were  being  held almost every week to look into  the quantum to borne by TNB, the independentpower producers (IPPs) and finally, the end-consumers. Analysts said TNB andthe IPPs, which had earlier asked for bigger margins, would have to considersacrificing some margins to ensure that the final cost of electricity was undercontrol. (StarBiz)

OUR TAKE

Alarm bells ringing.We view this article in StarBiz with some cause for concern for the profitabilityof Utility-related companies in Malaysia. Previously, any gas price hike hasbeenaccompanied by a corresponding hike in electricity prices to compensate for thehigher fuel costs. Do note that in Malaysia currently, all fuel costs are borneby TNB and it would only be able to maintain its profit margins by passing onany fuel cost increases to consumers via higher electricity prices. Goingforward, the main issue is how to price the natural gas that is pumped into thesystem from Malaysia's 1^st Liquefied Natural Gas (LNG) importationterminal in Melaka that should operate commercially by Sep 2012.

Market price for LNG?Previously, the various major stakeholders in the importation of LNG intoMalaysia seemed to have held somewhat intransigent positions, with Petronas insistingthat it will sell the gas generated from the LNG at market prices, TNBinsisting that is should be able to pass on this market price of gas via ahigher electricity tariff and the Government seemingly unwilling to raise theprice of electricity. While we are uncertain at what price the LNG has beensourced and from where (2 previous possible sources include Bintulu and Gaz deFrance's trains in Egypt), the indicative natural gas price in Asean is at RM40per mmBTU versus the current RM13.70 per mmBTU enjoyed by the power sector. Assuch, someone will have to pay for the 3-fold jump in gas prices.

Even if only 200mmscfd of gas is generated from LNG atmarket prices versus the 1350mmscfd of gas that should be supplied to TNB fromPetronas,  which would still mean thatthe blended price of gas should be RM17.60 per mmBTU or a 28.5% hike in gasprices that has to be absorbed either by TNB, IPPs or consumers. 

More transparency fromauthorities. Aside from this rather alarming article, positive catalystsfor the sector include greater transparency on industry drivers from the authorities.The ST is now releasing information on the generation mix for electricity on a dailybasis on its website. (See Figures 1 and 2). We also note the upcoming launchof the Malaysian Energy Information Hub by the Ministry of Energy, GreenTechnology and Water on 28 Feb, which we hope will also shed more light onindustry dynamics on a more periodic basis.

BUT much uncertaintyremains. Our analysis currently indicates that a 1% hike in overall naturalgas price without a corresponding hike in electricity tariffs would lower netprofits by 3%. As such, a clear policy as to how much LNG-related gas will besold at and who will share the cost needs to be articulated soon to avoid concernsof undue profit erosion at the  Utilitycompanies. Do note that requiring Utilities to absorb this cost would be akinto continuing the subsidy mentality that the Malaysian Government haspreviously indicated the country should wean itself off. In terms of our callsfor the Utility sector, we remain NEUTRALon TNB (FV: RM6.36) and see the gas price uncertainty as another factorcapping its upside. We have a Trading BUYcall on MMC (FV: RM3.70) but that is largely driven by non-power catalysts,while we keep our  BUY call on Petronas Gas (FV: RM17.00) for now,although this will likely be reviewed given the limited upside to our FV. Donote that PetGas is a beneficiary of the LNG terminal regardless of the gasprice as they are only transporters of the gas rather than  the owners. All in all, we remain NEUTRAL on the sector and on the largestcomponent of the sector, namely TNB, until the date for the general election isannounced, after which greater clarity can be expected on any electricitytariff and gas price hikes.  


Source: OSK188

Construction - Newsflow for MRT gains traction

Stock Name: GAMUDA
Company Name: GAMUDA BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 4.50

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.70

There has been more positive newsflow on the MRT project. The PDP agreement has been officially signed with announcements made by Gamuda and MMC. As expected the fee is 6% less value of the tunneling works for the Sungai Buloh to Kajang (SBK) line MRT. Apart from this the PDP will receive in total 13.9% reimbursable costs to cover overheads, engineering (design and supervision) and site investigation where the breakdown is - i) 5.3% to cover overheads where 456 workers have been hired ; ii) 2.9% for engineering and consultants conducting site investigations, topographical surveys and iii) 5.7% for engineering consultants, architects, quantity surveyors and system integrators. The other important point is the entire quantum of allowed cost overruns or contingency funds is capped at 15% where anything over this limit will be borne by the PDP.

In our view, the terms of the PDP agreement is attractive for a project of this magnitude where it will have to manage all the contract winners for the 90 packages ensuring timely delivery within the budgeted cost. The total PDP fees works out to be RM480m assuming a project cost of RM8bn (less land acquisition) and 6% fees. This works out to be RM0.12/share for Gamuda and RM0.08/share for MMC. This has yet to be factored into our SOP value.

MRT Co has also issued the detalied list of packages for the construction of the SBK Line which includes when tenders will open, award date and completion of projects. To recap, V5 (Maluri Portal - Plaza Phoenix) and V6 (P. Phoenix - Bandar Tun Hussein Onn) have been awarded to IJM and Ahmad Zaki respectively. The next packages are V4 (Sect 16 - Semantan portal), V1 (Sg. Buloh to Kota Damansara), V2 (Kota Damansra to Dataran Sunway) and V3 Dataran Sunway to Sect. 16 where tenders will be called in 2Q12 and award will be in 3Q12. We expect contract sizes to be chunky for each pacakge at between
RM700m to more than RM1bn. There will be an open and bumiputra category where the listed beneficiaries for the open category include Sunway, Mudajaya, Muhibbah, IJM Corp, MRCB and Gadang. The bumiputra category listed beneficiaries include Naim, TRC Synergy, TSR Capital, Ahmad Zaki and Zecon.

As for the tunneling portion, the tender calling period is between 2Q-3Q12 with awards in 3Q-4Q12. We continue to believe MMC-Gamuda JV is the frontrunner for the RM7-8bn tunneling portion driven given the strong multiplier effect on the economy if the project award is kept domestic. MRT Co. estimates the mutliplier effect on the economy from this project to be 2.5x or RM213bn flowing into the economy until 2020. We maintain our Buy ratings on Gamuda (TP RM4.50) and MMC Corp (TP RM3.70).

Source: HwangDBS Research 13 Feb 2012

MRT, IPOs to Boost Sentiment

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 3.70

Malaysia Construction - PDP agreement details revealed

Stock Name: GAMUDA
Company Name: GAMUDA BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 4.50

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.70

According to the media, the MMC-Gamuda JV has finalised the details with MRT Co on the scope of work and fees for its role as the Project Delivery Partner (PDP) for the MRT project. The fees are expected to be  a lucrative 6% of the total project cost excluding tunneling (c. RM8bn excluding land cost) and 5% reimbursement for costs incurred so far for approvals, technical designs and Environmental Impact Analysis (EIA). This will be progressively recognised over the duration of the project until mid-2017.

The total PDP fees works out to be RM480m assuming a project cost of RM8bn and 6% fees but will be RM900m if including the tunneling portion (c. RM7bn). This works out to be RM0.12/share for Gamuda  and RM0.08/share for MMC. This has yet to be factored into our SOP but we have taken some assumptions in terms of the civil works for the MRT. Recall, the MMC-Gamuda JV is also bidding for the tunneling portion.

Hence, in the unlikely event it is not awarded the project it is able to reap PDP fees for the entire project  cost (c. RM15bn). The scope of works for the PDP include acting as a turnkey contractor where it will be responsible for the engineering designs and technical specifications. It also has to deliver the MRT project within the cost and time frame and be responsible for all other contractors in terms of quality, safety and timeliness.

We continue to like MMC-Gamuda's chances for the tunneling works given i) tunneling experience dating back to 2001 with 4 projects currently; ii) government's interest to keep project domestic driven given  strong multiplier effect on the economy; iii) the project will be awarded via a Swiss Challenge; and iv) MRT is funded by the government and hence foreign contractors may not have an advantage in terms of the funding card.

The award is expected in April 2012. We maintain our Buy ratings on Gamuda (TP RM4.50) and MMC  Corp (TP RM3.70).

Source: HwangDBS Equity Research 9 Feb 2012

Planes, Trains and Automobiles

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: BUY

Target Price: 3.65

Malakoff inks PPA with TNB

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: KENANGA

Price Call: BUY

Target Price: 3.10

OSK keeps 'buy' call on MMC Corp

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: BUY

Target Price: 3.65

OSK Research is maintaining a "buy" call for MMC Corp Bhd at a fair value of RM3.65, as the company's performance was within expectations and largely driven by an absence in provisions and reversal of profits, although the numbers still fell below consensus expectations.

In a statement today, OSK Research said it was raising the forecast due to a change in the way MMC reports its numbers, which led the research firm to tweak up its transport margin forecast.

"We are revising upward our financial year 2011 forecast by 6.9 per cent and that for financial year 2012 by 2.2 per cent on an upward revision in transport and infrastructure margins," it said.

Meanwhile, OSK Research said the delay in Gas Malaysia's initial public offering (IPO) is not a serious one, although it cautioned that MMC would need such catalysts to unlock value and drive up its share price.

It anticipated that it would be difficult for Gas Malaysia to get its Gas Supply Agreement signed with Petronas until year-end.

"However, we are not too disappointed with MMC's announcement that Gas Malaysia IPO's would be pushed back, most likely to the first quarter 2012," OSK Research said.

"We feel there is no harm done from this slight delay as market conditions may stabilise moving into the second quarter 2012," it added. -- Bernama

MMC ready for Gas Malaysia IPO

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 3.65

MMC Corp Bhd
(Nov 17, RM2.51)
Maintain trading buy at RM2.52 with revised fair value of RM3.65 (from RM3.47): Following our meeting with management and our Invest Malaysia Hong Kong 2011 event, we note that the Port of Tanjung Pelepas (PTP) has been growing at a stronger-than-expected 15.5% year-to-date in terms of volume, while Johor Port has secured a tariff hike after a 20-year wait and the double-tracking project remains on track.

With numerous large IPO such as Pavilion REIT and Felda Global hogging investor attention, MMC should not be left out in the cold in view of the upcoming Gas Malaysia Bhd IPO. The proposed IPO has secured approvals from Bursa Malaysia, MMC shareholders and the Economic Planning Unit.

All that is holding it back now is the condition requiring Gas Malaysia to sign a new gas supply agreement with Petronas. We understand demand from investors at the indicative IPO price of RM2.20 per share has been strong.

We build into our assumptions: (i) that MMC raises RM307 million from the sale of its 10.9% stake in Gas Malaysia and uses it to pare down its borrowings; (ii) Gas Malaysia's share price settles at RM2, which we build into our sum-of-parts valuation for MMC. This will lift our earnings forecasts by 3% for 2012 and 4% for 2013 as the finance cost savings offset minority interest leakage.

Our sum-of-parts fair value is lifted to RM3.65 and we maintain our 'trading buy' call, noting that much depends on the listing of Gas Malaysia. ' OSK Research, Nov 17


This article appeared in The Edge Financial Daily, November 18, 2011.

HwangDBS: Buy MMC Corp shares

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.70

HwangDBS Vickers Research has maintained its "buy" call on MMC Corporation Bhd with a target price of RM3.70 despite lowering its estimation for the company's 2011-2013 earnings by six to 16 per cent.

In its Company Focus, the research house said it had cut forecast earnings for MMC after imputing higher tax rates.

It said MMC's second quarter net profit of RM82 million was below its estimate "as the absence of deferred tax income related to the aeromall construction in Senai resulted in a higher effective tax rate for the first half of 2011.

"Pre-tax profit was in line."

It said MMC's core operations remained robust with first half pre-tax profit up 44 per cent to RM553 million. - Bernama

OSK may raise MMC fair value

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD

Research House: OSK

Price Call: BUY

Target Price: 3.58

OSK Research says Malaysia Mining Corporation's (MMC) fair value will be raised only if the Initial Public Offering (IPO) price of its subsidiary, Gas Malaysia, exceeds RM1.06 during the
book-building exercise.

"While the institutional price has yet to be decided by the book-building exercise, we have a discounted cashflow value of RM1.36 billion for Gas Malaysia, or an indicative price of RM1.06 per Gas Malaysia share," it said.

The research house said MMC would strive to secure a better pricing than this in its IPO. At this valuation, MMC will raise RM147.9 million from its 10.87 per cent stake sales, it said.

"If MMC does secures at least this valuation for Gas Malaysia, it will be neutral to our Sum of Parts fair value (SOP FV) for MMC as the cash raised will just offset the drop in effective stake from 41.8 per cent to 30.9 per cent," OSK said in its research note today.

Therefore, OSK is maintaining a "trading buy" call on MMC shares and keep its SOP FV on MMC intact at RM3.58.

"After the recent selldown on global uncertainties, MMC looks very attractive and the IPO announcement should serve as a positive catalyst," it said.

MMC shares gained two sen to close at RM2.63 in the morning session today. -- Bernama

MMCCORP - MMC secures power plant extension

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD
Research House: OSK

MMC Corp Bhd
(June 14, RM2.72)
Maintain trading buy at RM2,71 with fair value of RM3.58: Just as we speculated in our June 3 report, MMC announced on Monday that a wholly owned subsidiary of Malakoff had accepted the conditional offer from the government via the Energy Commission to undertake the construction and development of a 1,000MW coal-fired power plant which will be located alongside the existing Tanjung Bin power plant.

The government's offer is subject to the finalisation of the terms of the agreement and approval of the detailed environmental impact assessment. The expected commercial operation date is March 1, 2016.

As we also mentioned in the report, we had expected an announcement to be made only in 3Q11. However, the rumour at that time hinted an announcement would be made earlier than expected, which is now proven correct.

We still expect MMC to incur a capex of RM4.5 billion and our profit forecasts are minimally changed up to 2012 as financing costs will be incurred starting from 2013.

Even as we had upgraded MMC back to a 'trading buy' on June 3 on potentially good news, which has now materialised in the form of the award of Tanjung Bin's extension, we see more good tidings ahead. These would include the kicking off of the MRT project in July and other construction projects that may be announced before year-end. We continue to recommend a 'trading buy' on MMC. ' OSK Research, June 14


This article appeared in The Edge Financial Daily, June 15, 2011.

MMCCORP - MMC Corp operations still strong

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD
Research House: HWANGDBS

MMC Corp Bhd
(June 1, RM2.75)
Buy at RM2.81 with revised target price of RM3.70 (from RM4.05): MMC reported 1QFY11 headline net profit of RM43 million (-56% quarter-on-quarter; +25% year-on-year) which was below our and consensus estimates. Earnings were dragged down by larger losses at Zelan Bhd of RM53 million against RM30 million loss in 1QFY10.

Operationally, the key divisions did well, as reflected in the 7% y-o-y earnings before interest tax (Ebit) growth to RM627 million. 1QFY11 transport and logistics Ebit jumped 27% y-o-y driven by its port business.

Pelabuhan Tanjung Pelapas Bhd's (PTP) throughput rose 18% to 1.8 million TEU, while Johor Port's conventional cargo volume and container volume rose 15% and 3% y-o-y. For its energy and utilities division, the overall higher dispatch factor for Malakoff Corp Bhd of 51% in 1QFY11 (against 49% in 1QFY10) and 6% y-o-y higher volume for Gas Malaysia Sdn Bhd drove 1QFY11 Ebit up 22% y-o-y.

We reduce our FY11 to FY13F profit by between 11% and 17% to prudently reflect continued losses at Zelan, where we factor in liquidated ascertained damages or provisions for its projects in Indonesia and Abu Dhabi.

We also take into account the recent unfavourable price structure for Gas Malaysia, whose spreads will narrow to RM2.04 to RM2.08 per mmbtu against RM3.95 previously. However, the impact will be offset by higher volume growth and strong TEU growth for PTP.

We recommend a 'buy' with a lower target price of RM3.70. We drop our target price after factoring in lower discounted cash flow value for Gas Malaysia.

While the news on Gas Malaysia might throw off valuations for a potential listing, there are other catalysts to look forward to. These are: (i) the expansion of 2,100MW Tanjung Bin coal-fired plant by 1000MW, with MMC being one of two parties short-listed. A decision will be made in 3QCY11; (ii) the RM50 billion mass rapid transit project, we use conservative assumptions in our sum-of-parts valuation; and (iii) higher values for its land in Johor. ' HwangDBS Vickers Research, June 1


This article appeared in The Edge Financial Daily, June 2, 2011.

MMCCORP - MMC downgraded to 'neutral'

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD
Research House: OSK

MMC Corp, a Malaysian ports, power and construction group, was downgraded to “neutral” from “trading buy” at OSK Research Sdn Bhd, cutting its fair value to RM3.08 from RM3.62.

Gas Malaysia Sdn. a 41.8 per cent-owned affiliate, will see narrower margins after the government yesterday announced changes to state subsidies and fuel prices, analyst Chris Eng said in a report today.

This should impact Gas Malaysia’s potential valuation if it proceeds with its initial public offering, he said. -- Bloomberg