Kenanga IB Research maintains Market Perform on MMC Corp, ups target price

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KUALA LUMPUR (Sept 15): Kenanga IB Research maintained its Market Perform rating on MMC Corporation Bhd at RM2.66 with a higher target price of RM2.81 (from RM2.77) and said that MMC Corp was gaining interests recently due to the group’s 2Q14 earnings recovery driven by Malakoff’s Tanjung Bin power plant recovery and KVMRT1 construction progress.

In a note Monday, the research house said with Malakoff’s earnings recovery, the probability of its listing of Malakoff had increased.

Kenanga IB Researh said one of the push factors was that Malakoff’s Junior Sukuk of RM1.8b with 6.3% interest rate due by September 2015; if it is not redeemed, it will result in higher interest costs.

It said on that basis, the listing should ideally take place before Sep-2015.

“If this is really the case, it will be a major re-rating for the stock.

“Elsewhere, we have also seen MMC Corp’s other key divisions (i.e. construction and ports) gaining momentum thanks to the KVMRT1 progress and growing ports activities in PTP.

“However, we decided to maintain our Market Perform call on MMC with a revised Target Price of RM2.81 (RM2.77 previously),” it said.

The research house said it was cautious over the potential delay in the 1000 MW Tg Bin extension (published in The Edge Weekly on 6th September 2014) which it said may affect the stock’s sentiment in the near term.

“Even though it might not impact too much on Malakoff’s DCF valuation (-5 sen reduced to our SOP if delay 6-12 months), we prefer to remain conservative here as we would prefer that there is more clarity on the issue to avoid impact on investors sentiment,” it said.