News MMC announced that its 51% subsidiary, Malakoff, through its 100% subsidiary Malakoff International (“MIL”), had secured RM918m Build-Own-Operate (“BOO”) contract from Oman Power and Water Procurement Co. to undertake the development and construction of an independent water project with a net desalination capacity of 191,000m3/day).
Comments Neutral. We are neutral on this announcement as the contribution to MMC is not material. MMC will have an effective interest on the project of up to 22.9% through Malakoff. The project will be undertaken by the MIL-led consortium partnering with Sumitomo-Japan (45%) and Cadagua-Spain (10%).
The largest water desalination project. The plant will generate up to 190,000m3/ day or 27% of the total demand for treated water in Oman. This will be the single largest water desalination plant among the 21 existing plants in Oman. We understand that the project comes with an operation and maintenance contract (“O&M”) for 20 years. The construction of the plan will cost c.RM918m (USD300m) and is scheduled for commercial operation by September 2014.
High subsidy environment. We note that Oman water industry is highly subsidised by the government (up to 37% of the production cost) and its tariff is one of the highest in GCC countries. The demand for water here is expected to grow by 2% to 3% annually.
Nonetheless, it is marginal to MMC. Assuming a 70:30 debt-to-equity ratio, MMC will have to fork out RM63m from its coffer to fund the equity portion inthe consortium. The project will be financed by Japanese financial institutions. Based on the 30% to 35% gross profit assumption on the operation, the project is expected to contribute c. RM14m to MMC’s pre-tax level.
Outlook We expect the listing of Malakoff to further strengthen MMC’s balance sheet and help it secure more recurring income based assets.
Forecast No change to our forecasts.
Rating Maintain MARKET PERFORM
We are maintaining our MARKET PERFORM rating due to the limited upside to our TP (+6%).
Valuation No change in our Target Price of RM2.80, which is based on a SOP valuation.
Risks Delays in MRT construction works.
Source: Kenanga
No comments:
Post a Comment