AmInvestment Bank Bhd has maintained its “buy” call for MMC Corp Bhd with a fair value (FV) of RM1.56, valuing the company’s port division at 16 times earnings per share (EPS) forecast for the financial year ending Dec 31, 2021 (FY21F).
The research house said that is at a 30% discount to its peers’ historical average to reflect its lower margins.
“We came away from a visit to MMC Corp’s biggest port, namely Pelabuhan Tanjung Pelepas (PTP), feeling positive. To recap, PTP contributes 65% of MMC Corp’s total container throughput volume,” said AmInvestment in a note today.
Year to date (YTD), it noted, PTP’s year-on-year (y-o-y) container throughput growth is already in the green and on track to meet the target of 9.6 million twenty-foot equivalent units (TEUs) for FY20F (which translates into a 5% growth y-o-y).
“PTP believes the growth has been driven largely by shipping lines consolidating their containers at the port as the alliances they belong to reorganise their routes amid the pandemic. This has also translated into higher demand for container storage. In addition, of late, there has been traffic driven by activities to replenish stocks depleted during the global lockdown,” said AmInvestment in a note today.
Besides, it noted, the port recently took delivery of four ultra large container vessel (ULCV) ship-to-shore (STS) quay cranes, with the remaining four units expected to arrive in the third quarter ending Sept 30, 2020 (3QFY20F). This would bring the total to 66 STS cranes, of which 24 are Triple E-compliant (economy of scale, energy efficiency and environmentally improved).
“This will allow the port to serve ULCVs with a capacity of more than 23,000 TEUs. The investment in the ULCV STS quay cranes is among the initiatives taken to improve efficiency by boosting container handling capacity, capability and reliability.
“PTP has embarked on its IR 4.0 (Fourth Industrial Revolution) transformation with the key focus on an autonomous prime mover, terminal operating system, productivity application and terminal network. In collaboration with Dutch terminal truck specialist Terberg, PTP plans to use autonomous trucks in the port area in future. Also, sensors and big data will be introduced in maintenance of infrastructure that shall result in cost savings,” noted AmInvestment.
It added: “PTP will add another 100 acres (to the Tanjung Adang development) with an estimated investment of RM140 million in the existing free zone as the current free-zone land is already 95% taken up. It should attract multinational companies (especially those currently headquartered in Singapore) to put up their production facilities/warehouses there (which would also translate into gateway cargo for the port).”
The research house said it had its first look at the port’s berth measuring 5km and the yard with a storage capacity of 223, 890 TEUs during the visit.
“Dredging work was ongoing to deepen its draught to 18.5m (from 18m currently), which will allow ULCVs to call the port without any tide restrictions. At present, the port is able to support the world’s largest vessel with a capacity of up to 24,000 TEUs. However, this will only be achieved in limited available windows,” AmInvestment said.
Looking ahead, the research house said the outlook for the port sector in the region, including Malaysia, is resilient, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound (feedstock) and outbound (finished product) throughput for ports.
AmInvestment also said there had been significant relocation of manufacturing bases by multinational companies out of China due to rising labour and land costs, exacerbated by the US-China trade war.
“MMC Corp is well positioned to capitalise on these via its stable of five ports in Peninsular Malaysia, with a total container handling capacity of 21.3 million TEUs annually (50% higher than its peer Westports Holdings Bhd’s capacity of 14 million TEUs annually). We see value in MMC Corp with its port business valued at nine times forward P/E (price-earnings) on a stand-alone basis,” it said.
At the time of writing, shares in MMC Corp were half a sen or 0.69% higher at 73 sen, bringing it a market capitalisation to RM2.22 billion. Some 320,900 shares changed hands.
Source: The Edge Markets