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