KUALA LUMPUR (Sept 24): AmInvestment Bank Bhd Research has initiated coverage on MMC Corporation Bhd (MMC) at RM1.07 with a Buy recommendation and fait value (FV) of RM1.66 based on sum-of-parts (SOP) valuations.

In a note today, the research house said it believes MMC has been shedding excess “weight” in recent years, transforming itself from a conglomerate (of which growth is typically capped by business operations that are too diverse) to predominantly a ports & logistics player (with the ports & logistics division contributing to 60% and 39% of group turnover and net profit in FY18 respectively).

It said the “trimming” came largely from the listing of Gas Malaysia Bhd in 2012 (reducing MMC’s effective stake in the sole licensed seller of natural gas in Peninsular Malaysia to 30.9% from 41.8%) and Malakoff Corp Bhd in 2015 (paring down its stake in the second largest power producer in Malaysia to 37.7% from 51%).

“We expect MMC’s earnings to grow by 75% and 6% in FY19–20F driven largely by: (1) the recent tariff hike in most of the ports MMC owns; (2) better margin from its’ ports division as a result of effective cost savings measurement; and (3) full consolidation of Penang Ports’ account.

“For FY20F, we project its ports & logistics division to contribute to 56% of group earnings, followed by construction (21%) and engineering (23%),” it said.