MMC unlikely to inject assets into NCB

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MMC CORP BHD is unlikely to inject its port operating assets into NCB Holdings Bhd as speculated by many, but may look at an initial public offering (IPO) of its terminals and related facilities instead, a source familiar with the matter tells The Edge.

“No, there are no plans to inject assets into NCB and take control of the company (NCB),” the source says.

This effectively quashes market talk that NCB would eventually become businessman Tan Sri Syed Mokhtar Albukhary’s publicly traded port operating unit. Syed Mokhtar controls 51.76% of diversified MMC, which is his flagship company.

Last week, MMC concluded the acquisition of a 15.73% stake in NCB at RM3 a share, or almost RM222 million in total, with state-controlled shipping company MISC Bhd, confirming a report by The Edge Financial Daily. There has been speculation that MMC would inject its various port businesses into NCB and transform the latter into its publicly traded port operating unit.

“The 15.73% of NCB is merely a strategic stake … [bought] so that the group has some equity [interest] in Port Klang,” the source says.

Port Klang, which is made up of Northport and Westports, is the busiest container port in Malaysia and is just outside the top 10 ranking of the world’s busiest ports.

Possibly, the talk of asset injection into NCB may have spun from previous dealings of Syed Mokhtar.  

In July 2000, he acquired a 19.9% stake in MMC (then Malaysia Mining Corp Bhd) from Permodalan Nasional Bhd (PNB). Over the years, he has injected various assets into the company and increased his shareholding.

Even for his other companies, such as the Tradewinds group and DRB-Hicom Bhd, he has used the same approach to take control of them. In the case of DRB-Hicom, for instance, he injected Bank Muamalat Bhd into the company to strengthen his shareholding, and then wrest control of it.   

NCB, meanwhile, has two main assets — port operator Northport (M) Bhd and haulier Kontena Nasional Bhd.

While Kontena Nasional has been bleeding for many years, Northport’s earnings have been steady as it controls 28% of Port Klang’s throughput, which in end-2013 was 10.35 million twenty-foot equivalent units (TEUs).

To put things in perspective, MMC has several ports under its control. According to its annual report for financial year 2013, MMC wholly owns Johor Port Bhd, holds 70% of Port of Tanjung Pelepas Sdn Bhd (PTP) and has a 10.2% stake in Lekir Bulk Terminal Sdn Bhd. Lekir Bulk Terminal is a coal handling facility, which is part of the larger Lumut Port.

Syed Mokhtar’s private vehicle Seaport Terminal (Johore) Sdn Bhd, which has 51.76% equity interest in MMC, took over Penang Port Sdn Bhd earlier this year in a limited open tender.

Other related assets under MMC include wholly owned JP Logistics Sdn Bhd, a land transport company, and Senai Airport Terminal Services Sdn Bhd, a wholly owned airport operator.

While NCB wholly owns Kontena Nasional, another of Syed Mokhtar’s main companies, DRB-Hicom, wholly owns Konsortium Logistik Bhd, a direct competitor of Kontena Nasional.

Whether MMC will acquire more NCB shares, perhaps to exceed 20% interest in order to equity account NCB’s earnings, remains to be seen.

Other major shareholders in NCB — other than PNB, which has close to 55% — include Port Klang Authority (5.32%) and Tabung Warisan Negeri Selangor (4.74%).

According to sources, Syed Mokhtar had made some overtures to buy Port Klang Authority’s stake sometime back, but these proposals were immediately shot down.

NCB’s share price hit RM2.30 last month, its lowest since October 2010. It closed at RM2.35 last Thursday, giving NCB a market capitalisation of RM1.1 billion. As at end-September this year, NCB’s net asset value per share was RM2.96.

The problem with NCB is its weak financials. For its third quarter of financial year 2014 ended Sept 30, it suffered a net loss of RM2.3 million on revenue of RM199.51 million.

Profit for the nine months dropped more than 90% to RM5.27 million compared with the previous corresponding period.

Earlier in the year, NCB hired auditors PricewaterhouseCoopers (PwC) to conduct a special review to identify the reasons it was incurring losses at Kontena Nasional.

PwC’s findings indicated that Kontena Nasional was bleeding as a result of inflated revenue and suppressed operating expenditure. Earnings were adjusted downwards by RM56.6 million — RM32 million was accrual of costs and RM24.6 million was over-recognition of revenue from 2010 to 2013.

In contrast, MMC has been doing well. For its nine months ended Sept 30, 2014, MMC posted a net profit of RM293.78 million on revenue of RM6.46 billion.

The company’s port and logistics division registered a pre-tax profit of RM193 million on sales of RM1.22 billion.

A check on the Companies Commission of Malaysia’s website reveals that Penang Port suffered an after-tax loss of RM9.13 million on revenue of RM345.81 million in financial year 2013 ended Dec 31, 2013.

Despite the losses at Penang Port, an IPO of port assets may generate considerable interest among the investing community.

While it may be early days, it makes sense to float the shares of the port unit, considering the high capital expenditure involved. PTP, for instance, is expanding its capacity from the current 10.5 million TEUs to 12.5 million TEUs at a cost of RM1.4 billion.

The sum is for the building of two new berths, three blocks of container yards and purchase of new quay cranes, among others.  

MMC closed at RM2.26 last Thursday, giving it a market capitalisation of RM6.88 billion.

This article first appeared in The Edge Malaysia Weekly, on December 8 - 14, 2014.