MMCCORP (FV RM3.70 - TRADING BUY) Corporate News Flash: The Pieces Come Together

THE BUZZ

Business Times reported that Penang Port SB (PPSB) has been shown a letter from the Ministry of Finance and directed by the Government to cooperate with Seaport Terminal (Johore) SB, a company linked to Tan Sri Syed Mokhtar Al-Bukhary. Nonetheless, PPSB has not been officially notified of a takeover.

OUR TAKE

Port users express concern. The paper also  quoted a news portal as  reporting that Syed Mokhtar’s officials are already running the port. When contacted by the paper, Penang Freight Forwarders Association (PFFA) president  Krishnan Chelliah said  the Government should reconsider the sale and engage with port users “before deciding on a move as drastic as this.’’ He also said the takeover by Syed Mokhtar would downgrade Penang port to a feeder port.

Details on the port. Penang Port basically handles port and ferry services for Penang.

These include managing:

- Swettenham Pier Cruise Terminal

- Tanjong City Marina

- Pangkalan Raja Tun Uda Ferry Terminal

- North Butterworth Container Terminal

- Butterworth Wharves

- Vegetable Oil Tanker Pier

- Prai Bulk Cargo Terminal

- Pangkalan Sultan Abdul Halim Ferry Terminal

- Bagan dalam Dockyard

- Prai Wharf

Based on its 2010 Annual Report, Penang Port handled 1.1m TEUs and 28.8m tonnes of throughput, which puts it in roughly the same league as Johor Port. However, its PBT was only RM11.1m in 2010 vs Johor Port’s PBT of RM155.1m in the same year while its revenue was RM312.1m vs Johor Port’s RM548m. We believe this was largely due to the loss making nature of ferry services.

Uncertain of exact plans for the port. If indeed this piece of news is true, it remains to be seen what Syed Mokhtar plans to do with Penang Port given  that he also  controls both the Port of Tanjung Pelepas (PTP) and Johor Port. We believe it is likely that a takeover of Penang Port by Syed Mokhtar will eventually see the port being injected into his flagship company, MMC, which is the current owner of Johor Port and PTP. The 3 ports may then be brought under a single entity which could then proceed to an IPO after Johor Port’s container operations are transferred to PTP. This will bode well  for MMC as it should be able to unlock some value at both Johor Port and PTP as well as allow easier fund raising for the still fast growing PTP.

A Logistics Masterplan. We also see the control of Penang Port as part of a logistics masterplan by MMC, which is currently evaluating the takeover of Keretapi Tanah Melayu Berhad (KTMB). With both the northern and southern ports in Peninsular Malaysia potentially becoming part of the group, MMC could perhaps derive some economies of scale from large scale logistics operations. In any case, if the takeover of Penang Port and KTMB materializes, MMC would  be the only private company in Malaysia with such a diverse and strategic asset base, which makes it a direct proxy to the health of the Malaysian economy. While it is too preliminary at this juncture to estimate the bottomline impact (if any) to MMC from a potential takeover of Penang Port, we note that the news flow on the company remains strong and MMC remains a Trading BUY call for us, with an unchanged SOP FV of RM3.70.  

Source: OSK188