Drop in MMC Corp’s share prices not justified, says MIDF Research

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KUCHING: The recent drop in MMC Corporation Bhd’s (MMC) share prices are not justified according to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research).

In a corporate update, the research arm saw that MMC’s share price fell by more than 15 per cent since the beginning of the second half of 2017 (2H17).

Since peaking at RM2.54 on June 8, MMC’s stock fell to an all-year low of RM1.84 on October 16.

MIDF Research opined that this steady decline could be due to the group’s weaker than expected earnings in the second quarter of financial year 2017 (2QFY17), but asserts that it is in absence of concrete reasons.

In fact, the research arm believes that MMC’s stock represents a good buying opportunity instead due to numerous tailwinds heading their way. For example, the group’s ports and logistic segment should stage a healthy rebound in 2HFY17 as its two largest ports – Johor Port and Port of Tanjung Pelepas (PTP) – are likely to record strong container and conventional throughput volume in the quarter.

“(Johor Port) due to higher demand of conventional cargo at its Johor hinterland, while (PTP) due to a recovery in the 2M alliance volume and new services by the Ocean Alliance,” explained the research arm.

Besides that, MMC has also guided that they have been in discussions with Suria Capital Bhd in regards to the potential acquisition of Sabah Ports Sdn Bhd (Sabah Ports).

“We believe that MMC could be seeking a stake in Sabah Ports, to expand its port footprint in East Malaysia where it sees good growth potential.

“In our opinion, synergies could be derived from this acquisition, provided the acquisition price being attractive,” MIDF Research guided.

Additionally, there is still also the potential of MMC’s plans to build a container port in Carey Island coming to fruition as their study with Sime Darby and Adani Ports to study is feasibility is still ongoing.

According to MIDF Research, MMC has affirmed their keenness to participate in the potential project but guides that further clarity of the opportunity would only be available further down the line.

“Perhaps in 2019,” suggested the research arm.

Meanwhile, the group’s engineering and construction segment has been uneventful as progress billings for their MRT1 package are coming to an end while their MRT2 package has yet to kick off.

But moving forward, the research arm is expecting that the group’s position as a project delivery partner for the Sabah portion of the Pan Borneo Highway to help start momentum going again for the segment.

Taking into consideration all of the aforementioned points, MIDF Research believes that a sell down of MMC’s stock is not justified and is instead upgrading their call on the stock to ‘Buy’ as they believe that it would provide a good buying opportunity.