MMC Corp’s earnings seen to pick up next year

MMC Corp Bhd (Dec 9, RM2.09)

Maintain buy with an unchanged target price of RM2.60: We believe further progress billings of water-related construction jobs will support MMC Corp Bhd’s 2016 earnings.

Contributions from the construction of the RM1.5 billion Langat sewage treatment plant have been small in 2015 but should increase going forward.

Besides that, the construction of the RM993 million Langat 2 water treatment plant has already reached 13%. The management is targeting to further monetise its land bank in Senai Airport City, Johor. There is a gross balance of 2,079 acres (841.34ha) and the management expects to monetise 150 to 220 acres every year.

MMC has yet to recognise the 189-acre sale on Aug 15, but expects to do so in the first half of 2016 (1H16).

We understand from the management that there is sufficient capacity for the next two to three years at NCB Holdings Bhd’s Northport before any expansion is required.

However, NCB’s contributions to MMC will likely remain small, as Northport now handles only 733,000 twenty-foot equivalent units (TEUs) in comparison with Port of Tanjung Pelepas’s 6.8 million TEUs.

We gather from the management that the MMC-Gamuda joint venture is still waiting for an official award of tunnelling work for Mass Rapid Transit Line 2 and that this may likely materialise only in 1H16.

This implies that while there will be some revenue recognition from the RM10 billion project in 2H16, contributions will likely be dampened by mobilisation costs. — Affin Hwang Capital Research, Dec 8

This article first appeared in The Edge Financial Daily, on Dec 10, 2015. Subscribe to The Edge Financial Daily here.