Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on May 24, 2021 - May 30, 2021

UTILITIES and infrastructure group MMC Corp Bhd is likely to undertake ship-to-ship transfer operations in Yan, Kedah, and not port operations as speculated, ­sources familiar with the matter tell The Edge.

It is understood that the vehicle that will undertake the ship-to-ship (STS in shipping circles) transfers will be Andaman Port Sdn Bhd, a wholly-owned unit of MMC Port Holdings Sdn Bhd, which in turn is wholly-owned by MMC.

It is stated in MMC’s latest annual report, for FY2020, that Andaman Port’s principle activities are to “develop, operate, manage, maintain and provide port facilities, activities and services at Pulau Bunting/Yan, Kedah Darul Aman or any other related areas”.

Checks on filings with the Companies Commission of Malaysia show that Andaman Port was incorporated in November last year and has a paid-up capital of RM2. Its directors are Datuk Seri Che Khalib Mohamad Noh, who is MMC’s managing director, and Badrulhisyam Fauzi, the company’s chief financial officer.

STS entails the transfer of cargo, possibly supplies or bunker, between two tankers positioned alongside each other, either while stationary or moving in a similar direction. A large portion of STS involves bunkering or refuelling of vessels.

A port official points out that it does not make sense to have two ports — Penang Port Sdn Bhd and the new port in Yan — operating so close to each other, especially when both are controlled by the same entity, MMC.

“If there is no room in Penang Port for expansion, it would be a different story. But there is ample room for expansion in Penang Port, so they might as well just expand Penang; why bother with Yan? Yan will end up cannibalising Penang Port,” he says.

Other than Penang Port, other terminals under the MMC banner include Northport (M) Bhd, Port of Tanjung Pelepas Sdn Bhd and Johor Port Bhd. There have also been attempts by MMC in the past to acquire stakes in Sabah Ports Sdn Bhd from Suria Capital Bhd and in Bintulu Port Bhd in Sarawak, but these have not been fruitful.

MMC is the flagship vehicle of businessman Tan Sri Syed Mokhtar Albukhary, who has 51.76% equity interest in the diversified company.

Much of the talk on MMC operating a port in Yan stemmed from Transport Minister Datuk Seri Wee Ka Siong’s announcement that an area in Yan had been gazetted as a federal port on May 10, and that some 600 sq km, accounting for a distance of 20 nautical miles from the Yan coastline, would be declared as part of the new federal port.

Speculation was that MMC would be undertaking the port development as it is, after all, the largest port operator in the country, with four large terminals — and the smaller Tanjung Bruas port in Melaka — under its belt.

Is MMC undervalued?

Talk of MMC bagging a port concession did little to lift its share price. It closed last Thursday at RM1.06, translating into a market capitalisation of RM3.23 billion. At this price, the stock was trading at a steep discount to its net asset per share of RM3.12.

In mid-March last year, MMC hit a multi-year low of 48 sen, leaving many to speculate that Syed Mokhtar and Permodalan Nasional Bhd (PNB), which via its various units has a 20.97% stake in MMC, would take the company private.

Rumours of a privatisation have continued to circulate but nothing has been announced. Several industry sources say that RHB Bank Bhd has been roped in to assist with the privatisation, but this remains conjecture at press time.

Collectively, Syed Mokhtar and PNB have 72.73% interest in MMC, which means they would have to fork out almost RM881 million for the 27.27% at market value for the stake they do not hold. Pegging a 20% premium to the current value would value the 27.27% at RM1.06 billion.

There are no other substantial shareholders in MMC other than Syed Mokhtar and PNB.

In addition to the ports, MMC has choice assets such as 37.6% in publicly traded power generation outfit Malakoff Corp Bhd; 30.9% in Bursa Malaysia-listed natural gas distributor Gas Malaysia Bhd; 100% of international airport Senai Airport Terminal Services Sdn Bhd in Johor Baru, water treatment company Aliran Ihsan Resources Bhd and MMC Engineering Bhd; and 99.1% in haulier Kontena Nasional Bhd. Via a 50% joint venture with Gamuda Bhd, MMC has also undertaken various portions of construction work for the mass rapid transit projects.

For its financial year ended December 2020, MMC registered RM375.29 million in net profits from RM4.49 billion in revenue. For the corresponding period a year ago, the company chalked up RM255.17 million in net profits on the back of RM4.71 billion in sales. The better financial results in FY2020 were attributed to the sale of land at Senai Airport, among others.

MMC’s net cash from operating activities for the 12 months in FY2020 was RM2.15 billion.

As at end-December last year, MMC had RM479.24 million in cash and bank balances, and long-term debt commitments of RM8.76 billion and short-term borrowings of RM1.01 billion. To put things in perspective, it paid RM616.33 million in finance costs for FY2020.

MMC has been looking to float its port operations for some time now. However, with its ports and logistics segment contributing more than 72% of revenue and more than 90% of profits before tax and zakat in FY2020, there could be issues with its listing status following a flotation of the port business.

Under Bursa Malaysia rules, the listing of a subsidiary must meet the requirements for chain listings.

Chain listing is a term used to describe a situation where a subsidiary or the holding company of a corporation already listed on the Main Market or ACE Market seeks a listing on its own.

Among other requirements, the chain listing must not detrimentally affect the interests of the shareholders of the already-listed corporation, and the holding company — in this case MMC — must have a separate autonomous and sustainable business of its own.

These chain listing requirements could be another reason for the privatisation of MMC being mooted time and again.

MMC’s closest competitor in terms of port operations is Westports Holdings Bhd, which operates a container terminal in Port Klang. At its close of RM4.34 on Thursday, Westports had a market capitalisation of RM14.8 billion, or more than 4½ times MMC’s market capitalisation.

However, Westports registered net profits of RM654.49 million from RM1.97 billion in revenue for its financial year ended December 2020. So even if MMC’s port division can obtain a market value that is half of Westports’, say RM7.4 billion, there would not be any impetus for shareholders to buy into MMC.

Nonetheless, with so much going on, MMC could generate considerable interest in the near term.

 

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