MMC Corporation Berhad

Transcription

1 24 November 2015 Initiate Coverage MMC Corporation Berhad Unearthing an undervalued conglomerate INVESTMENT HIGHLIGHTS At MMC s current price, our valuation shows that investors are only paying for its ports and getting other assets for free. The listing of MMC Ports could happen in FY16, thereby creating the largest listed port entity on Bursa Malaysia. We initiate coverage on MMC with a target price of RM3.05 derived from sum-of-parts valuation. Pay for the ports and get the other assets for free. Based on our estimates, MMC s current market capitalisation of RM6.6b prices in only its 3 port assets which we value at RM6.9b, while ignoring the remaining assets worth a combined RM8.5b (after subtracting debt). Meanwhile, MMC is currently trading at an undemanding price-to-book ratio (PBR) of 0.89x and -1.5 standard deviation (sd) below its 5-year mean. We believe that it should be trading closer to 1.3x PBR which is +1.5sd above its 5- year mean as MMC is on a listing drive, unlocking the value of its subsidiaries which are ripe for listing. Monetising MMC Ports to create the largest listed port on Bursa. MMC s port assets, consisting of the Port of Tanjung Pelepas (PTP), Johor Port and Northport could be listed as soon as 2H16 thereby creating the largest Bursa-listed port entity in terms of capacity at 18m twenty-foot equivalent units (TEU). In comparison, the capacity of Westports Holdings Berhad (WPRTS) stands at 11m TEU. The listing exercise could see MMC/MMC Ports raising between RM3.4b-RM4b, valuing MMC Ports at circa RM6.9b-RM8.0b. We believe that the appeal of MMC Ports lies in its geographical diverse port assets, located in central and southern hinterlands of Peninsula Malaysia with the possible inclusion of Penang Ports which is held by MMC s largest shareholder. We initiate coverage on MMC with a target price (TP) of RM3.05 derived from sum-of-parts valuation. This implies an upside of +42% that may seem excessive. However, we have applied a conservative approach in valuing Senai airport and Aliran Ihsan (water concession) at acquisition price while pricing its land bank at fire sale value. Our TP implies PER of 19x for FY16F EPS and 1.3x PBR. We like MMC s diversified businesses which have high barriers to entry and are not easily replicated. In addition, its energy and ports businesses hold market leading, oligopolistic positions and are deeply intertwined with the domestic economy. Initiate Coverage with BUY RETURN STATS Target Price (TP): RM3.05 Price (23 Nov 2015) Target Price Expected Share Price Return RM2.06 RM % Expected Dividend Yield +1.9% Expected Total Return STOCK INFO +50.0% KLCI 1, Bursa / Bloomberg Board / Sector Syariah Compliant 2194/ MMC MK Main/ Trading Services Yes Issued shares (mil) 3,045.1 Par Value (RM) 0.10 Market cap. (RM m) 6,272.8 Price over NA wk price Range RM1.49-RM2.80 Beta (against KLCI) mth Avg Daily Vol 0.7m 3-mth Avg Daily Value Major Shareholders RM1.4m Seaport Terminal 51.76% PNB 20.28% LTH 6.52% is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures

2 2 INVESTMENT STATISTICS FYE Dec FY13 FY14 FY15F FY16F FY17F Revenue (RM m) 7, , , , ,585.9 EBIT (RM m) 1, , , , ,135.3 Pre-tax Profit (RM m) Core PATAMI (RM m) EPS (sen) EPS growth (%) (76) 121 (47) PER(x) Net Dividend (sen) Net Dividend Yield (%) Source: Company, MIDF Research DAILY PRICE CHART Source: Bloomberg Tay Yow Ken, CFA

3 1) KEY INVESTMENT MERITS A) MMC s current market capitalisation only reflects the value of its ports division while neglecting all other segments. Its current market capitalisation of RM6.6b (based on price of RM2.18 as at 17/11/2015) only prices in its 3 port assets which we value at RM6.9b. Hence, valuation-wise, the other businesses consisting of energy & utilities division, engineering & construction division, highway & airport concessions and its massive land bank in Johor which we believe is worth a combined RM8.5b (after subtracting debt) would be attainable entirely for free. We believe such a mismatch is unjustifiable, and the severe undervaluation serves as a golden opportunity for investors to accumulate shares. At the current entry point, investors will also be able to ride on MMC s plans of unlocking the value of its assets starting with the listing of its port assets as soon as next year. What investors pay for 6.9b MMC Market Cap: RM6.6b 5.7b 0.9b Energy & Utilities Toll and airport concession Engineering and construction Landbank 1.9b Ports 4.3b What investors get for free Figure 1: Trading at -1.5 SD below its 5 year average P/B ratio (Source: MIDF Research) B) Trading at undemanding price-to-book ratio (PBR) of 0.89x, -1.5 standard deviation below its 5-year mean. We opine that this valuation is unjustified given that both the macro environment and the company s micro factors remain intact. The output growth of Malaysia is expected to remain resilient in which BNM has forecasted 2016 GDP to grow at 4%-5%. Meanwhile, the company maintains a strong AA credit rating with its net borrowings not deemed excessive. Over the years, a recurrent concern on MMC has been its high gearing level which peaked at 2.0x in FY14 but has drastically improved to 0.5x in FY15 after the listing of Malakoff. Meanwhile, the port assets are slated for listing in 2016 while its land bank is being sold/leased progressively which will further pare its debt levels thus making its balance sheet much leaner and opening the door for potential M&A activities. Based on our target price of RM3.05, we believe that MMC should be valued at 1.3x PBR, above its 5- year mean of 1.2x. This is premised on the monetisation prospects of the company s assets, specifically the ports segment and its land bank, which will fetch a higher value compared to what is recorded in its books. 3

4 SD Figure 2: Trading at -1.5 SD below its 5-year average P/B ratio (source: MIDF Research) 5-Year Mean -1.5SD C) Near term catalyst Unlocking the value of its port assets creating a new listed entity MMC Ports. We believe that MMC could list its port assets consisting of the Port of Tanjung Pelepas (PTP), Johor Port and Northport Corporation (NCB) as soon as 2H16 creating the largest listed port entity on Bursa Malaysia in terms of capacity at 18m twenty-foot equivalent units (TEU). In comparison, the capacity of Westports Holdings Berhad (WPRTS) stands at 11m TEU. Our view is premised on the notion that: i. MMC s acquisition of NCB from Permodalan Nasional Berhad (PNB), Amanah Raya Trustees (ART) and remaining shareholders will be fully funded through bank borrowings which attached with the condition that MMC has to list the port assets within a timeframe of 1-3 years for repayment of bank borrowings; ii. It would be beneficial for MMC to list its port assets sooner rather than later to avoid paying hefty finance charges which we estimate could reach RM55m p.a. (assuming borrowings: RM1.44b, interest rate: 5% p.a. and tax rate: 24%) hence almost cancelling out NCB s FY16F PAT of RM56m; and iii. We forecast that PTP, Johor Port and NCB will embark on a CAPEX drive to the tune of RM670m and RM550m in FY16 and FY17 respectively for wharf extensions and equipment purchases. Thus, we believe fund raising through a primary share offering would be a likely avenue to fund these expansions. The listing will create the largest listed port entity on Bursa Malaysia in terms of throughput capacity. MMC Ports could fetch a valuation of RM6.9b which would be second only to WPRTS (market cap: RM15b) which has higher PAT and captive market position serving the Ocean 3 Alliance (CMA CGM, CSC and UASC). However, MMC Ports assets are spread out offering geographical diversification, serving the central Klang Valley and southern Johor hinterlands. Both locations also cater to transhipment cargo by serving the Straits of Malacca, the busiest in the world in terms of vessel transits per day. Should the listed entity also include Penang Port which is currently under Seaport Terminal Sdn Bhd (MMC s largest shareholder), the soon to be listed port entity will operate a port in the northern region as well, riding on Penang s prowess particularly in the E&E sector.

5 5 FY14A FY15A FY16E FY17E Capacity (m' TEU) WPRTS MMC Ports Container throughput (m' TEU) WPRTS Utilisation rate % 76.1% 82.8% 79.5% 77.8% MMC Ports Utilisation rate % 68.6% 72.2% 75.7% 74.5% Figure 3: WPRTS vs. MMC ports capacity & container throughput handled (Companies, MIDF Research) Figure 4: MMC Ports are located in the central and southern region along the Straits of Malacca (Source: MMC) Total IPO proceeds could amount to RM1.4b for MMC and RM2.0b for the listed port entity, assuming 49% of MMC Ports is placed out with 40% on offer for sale basis and 60% public issue. This would be sufficient for MMC to repay its RM1.4b debt for the NCB acquisition and funding the new port entity s CAPEX requirements for FY16 and FY17 respectively. In addition, residual funds raised from the IPO could be used to pare MMC Ports existing debt amounting to RM3.7b. However, our RM6.9b valuation on the port assets is our base case which we deem as conservative implying forward price-to-earnings (PER) of 22x or 15% discount to WPRTS current valuation of 26x. If MMC Ports valuation can reach RM8b (based on FY16 forward PER of 26x which is WPRTS current valuation), potential fund raising could be as much as RM1.6b for MMC and RM2.4b for MMC ports. In this event, our TP would be raised by 16% to RM3.54.

6 6 Valuation Method DCF method (implying 22x fwd FY16 PER) 26x fwd FY16 PER Valuation of MMC Ports (RM m) 6, , Offer for sale - Proceeds to MMC (RM m) 1, , Public issue - Proceeds to MMC Ports (RM m) 2, , Total funds 49% placement (RM m) 3, , Figure 5: Possible listing scenarios (Source: MIDF Research) We believe that the listing of MMC Ports is value enhancing for MMC: i. It unlocks the value of MMC Ports. By listing the standalone entity with a clear and focused core business, it would enable the market value of the assets to be priced more efficiently which could provide a floor in valuing MMC through sum-of-parts (SOP). ii. The listing should theoretically reduce the holding company discount by reducing the liquidation discount (i.e. costs in monetizing the asset) and marketability discount (i.e. tradability of the individual asset). Recall that during MMC s listing exercise for Malakoff, MMC s share price leaped 15% over a 3-week period after Malakoff s share price was fixed at RM1.80 on 17/3/2015. iii. Repayment of holding company borrowings, particularly the RM1.4b debt for the acquisition of remaining shares in NCB. iv. Maintain consolidated revenue and earnings by maintaining 51% stake of the listed entity. 37% 11% 52% PTP + NCB + JPORT WPRTS OTHERS m' TEU A 11A 12A 13A 14A 15E 16E 17E WPRTS PTP NCB OTHERS Figure 6: MMC Ports made up 52% of FY14 throughput volume (Source: PKA, MIDF Research) Figure 7: Container throughput forecast for FY15-FY17 by port (Source: MIDF Research)

7 7 RM' b % 20.0% 15.0% 10.0% 5.0% 10.0% 8.0% 6.0% 4.0% 0 10A 11A 12A 13A 14A 15F 16F 17F Revenue PBT PBT margin 0.0% Figure 8: Revenue, PBT and PBT margin forecast for MMC Ports. Revenue registered a 6-year CAGR of 5.6% between FY10- FY15. FY16 will see a spike in revenue with consolidation of NCB. (Source: Company, MIDF Research) 2.0% 2015E 2016E 2017E PTP WPRTS NCB Johor Port Figure 9: Forecasted container throughput growth. PTP and WPRTS are projected to grow at a faster pace compared to NCB and Johor Port as they are predominantly transhipment ports that benefit from improved cargoes 2M and O3 Alliances. (Source: MIDF Research) D) Construction juggernaut poised to benefit from the rollout of major infrastructure projects. MMC has been a key beneficiary of major infrastructure jobs in Malaysia and will continue to be a top contender for future jobs. At present, we estimate that MMC s outstanding order book stands at RM2.0b which is 2.2 times FY15F construction revenue and hence should keep them busy until Looking forward, we have factored in contract replenishment of RM6b and RM1b for FY16 and FY17 respectively (note that FY17 replenishment is lower due to bulky RM6b in FY16 which takes up a lot of MMC s capacity). We believe that our contract replenishment targets are achievable as MMC- Gamuda, MMC together with JV partner Gamuda Berhad, is the front runner to bag the KVMRT2 tunnelling package worth RM12b that is slated to be awarded in 1H16. This is premised on MMC-Gamuda having the expertise in carrying out complex tunnelling works as demonstrated in KVMRT1. Projects Value (RM'm) Stake *Outstanding Awarded (RM'm) date Senair Airport City Infrastructure Works Internal job n.a. n.a. PTP's Engineering Workshop Internal job n.a. n.a. Senair Airport Hangar Internal job n.a. n.a. COGEN civil, structural RAPID complex % May-14 Langat 2 Water Treatment Plant % Apr-14 Langat centralised sewage treatment plant 1, %* Oct-14 KVMRT Line 1 (SBK Line) Tunneling 4, % Feb-12 Total 6, ,996.4 Figure 10: Current project order book. (Source: Company, MIDF Research) *Note 1: Outstanding amount based on effective stake in project and outstanding sum for FY16 onwards. *Note 2: MMC took over Sumitomo s portion from the 50:50 JV PDP for MRT line 2. MMC-Gamuda has also clinched the Project Deliver Partner (PDP) job for KVMRT2 (Sungai Buloh-Serdang) stretching a distance of 52km and entailing an estimated construction cost of RM28bn (excluding land cost). The PDP fee amounts to 6% of the whole project cost subject to meeting KPI s on delivery within cost, timeliness, quality and safety.

8 8 Year Contractor's revenue MMC-Gamuda Fees MMC s Portion (RM m) 6% (RM m) (50%) FY FY18 3, FY19 8, FY20 3, FY Total 16, % = Figure 11: KVMRT2 PDP fee schedule. (Source: Company, MIDF Research) E) Defensive earnings contributions from its utilities business. MMC derived 67% of its PBT from its energy division in FY14, namely its 37.6% associate Malakoff Corp. Malakoff is the largest independent power producer (IPP) in Malaysia owning 5,346MW of capacity through equity stakes in 6 power plants. This is equivalent to 26% of Peninsula Malaysia s total installed capacity and is second only to Tenaga Nasional Berhad (TNB) which controls 47% and who also happens to be the off-taker for Malakoff. Combined, both Malakoff and TNB supply 73% of Peninsula Malaysia s energy needs (source: Energy Commission). We view Malakoff s earnings as defensive with future prospects intact due to: i. The securing of long-term power purchase agreements (PPA) with TNB with fuel cost pass-through (FCPT) mechanism in place to eliminate risks arising from commodity price fluctuations. ii. Its ability to contest for the next cycle (year 2020 onwards) of power projects as Malaysia s reserve margin has fallen to 20-25% range in FY14, prompting a need for capacity plant-ups to a more secure >30% reserve for energy security to cater to demand growth and unscheduled plant outages (source: EC). iii. Its 7 th power plant (Tanjung Bin Energy) with an additional 1,000MW set to come on-stream in 1HFY16 which will increase Malakoff s net effective capacity by 11% to 5,910MW (PD Power 436MW to be retired). No Plant Name Plant Type PPA expiration Generating capacity (MW) Effective Participation Effective capacity 1 Tanjung Bin Power Plant Coal ,100 90% 1,890 2 SEV Power Plant CCGT - Natural Gas ,303 94% 1, Kapar Power Plant Multi fuel 2019/2029 2,420 40% GB3 Power Plant CCGT - Natural Gas % Prai Power Plant CCGT - Natural Gas % Port Dickson Power Plant OCGT - Natural Gas % Total 7, ,346.0 To come on-stream in FY16 7 Tanjung Bin Energy Coal , % 1,000.0 FY16 Total 8, ,346.0 Figure 12: List of Malakoff s of power plants. (Source: Company, MIDF Research)

9 9 F) Second largest land owner (industrial portfolio) in Iskandar Malaysia behind UEM Sunrise. The industrial property market in Johor is still buoyant with a +52%yoy increase in property transactions in 1H15 which is in contrast to the residential property market that has been sluggish recording a -9%yoy decline due to oversupply concerns caused by aggressive new launches (source: NAPIC). This bodes well for MMC as the bulk of its 5,000 acre land bank in Senai and Tanjung Bin consist of industrial land with various swathes earmarked as tax free zones. MMC s land bank boasts excellent connectivity Senai being in the vicinity of the Senai Airport City and Tanjung Bin located within close proximity to the second link to Singapore as well as PTP. We believe that the market for industrial property is still favourable in view of: a) Demand driven by Singaporean businesses looking to expand at a cheaper cost. The discrepancy between industrial land prices in Singapore and Iskandar is stark with Singaporean property prices at times being double that of its northern neighbor when factoring in currency exchange. b) Prospects are encouraging with RM166b worth of investments committed to Iskandar with 47% realized as of 1H15 increasing the attractiveness of the Iskandar region as a growth hub (source: IRDA). c) Connectivity improvements through the construction of the high speed rail linking KL-Iskandar-Singapore. MMC has concluded land lease/sale deals with multinational companies indicating healthy interest for its land bank. Among MMC s clients who have leased lands include The Hershey Company (RM816m chocolate factory) and Fuji Oil (manufacturing facility). Meanwhile, MMC has also sold parcels of land to experienced developers such as EcoWorld Berhad and AME Group for development into industrial parks. We are valuing both land banks at a very conservative RM20psf which we believe is close to its fire sale value. Our valuation is also significantly below management s RM30psf-RM50psf target selling price. Figure 9: Senai land bank. (Source: Company, MIDF Research) RM10psf RM15psf RM20psf (Base) RM25psf RM30psf SOP Value Target Price Figure 10: Sensitivity analysis to different land prices. (Source: Company, MIDF Research)

10 10 2) FINANCIAL HIGHLIGHTS More stable PBT margin expected on normalised revenue. PBT fluctuated between RM250m-RM1.8b between FY11-FY14 as FY12 recorded a non-recurring one-off gain of RM1b from the listing of Gas Malaysia and lower PBT recorded in FY13 due to major maintenance works in Tanjung Bin Power Plant. Looking ahead, we expect FY15 and FY16 PBT to be softer due to lower contributions from Malakoff after its listing on Bursa Malaysia in May 2015 resulting in a reduction of its stake from 51% to 38%. With the lower contributions from Malakoff, we expect FY15- FY17 earnings growth to be contributed by the ports and construction segments. Meanwhile, margins are projected to maintain within the 10% range due to stable contributions from the ports, energy and construction segments. RM' b A 12A 13A 14A 15F 16F 17F Revenue PBT PBT margin 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Figure 11: Revenue, PBT and PBT margin for FY11A-FY17F. (Source: Company, MIDF Research) Net gearing peaked in FY14. Net gearing peaked in FY14 but eased to its lowest level in 5 years in FY15 after the listing of Malakoff. Furthermore, while we expect net gearing to trend upwards between 70-80% in FY16F-FY17F due to the acquisition of NCB and the commencement of MRT2 works, however the listing of MMC Ports will bring gearing back down to more comfortable levels. RM' b % 200.0% % % % 0 11A 12A 13A 14A 15F 16F 17F 0.0% Net debt Net debt / average equity (Gearing) Figure 12: Net debt and net gearing for FY11-FY17 (Source: Company, MIDF Research)

11 11 3) VALUATION Target price of RM3.05 derived from our SOP valuation. We value MMC at RM3.05 using the sum-of-parts method as MMC is a conglomerate with diverse business divisions. Our TP offers ample upside of +42% to investors. At our TP of RM3.05, FY16F PER is implied at 19x, below its 5-year average of 22x while PBR of 1.3x is slightly above its 5-year average of 1.2x in view of corporate exercises to unlock the value of subsidiaries. We like MMC s diversified businesses which have high barriers to entry and are not easily replicated. In addition, its energy and ports businesses hold market leading, oligopolistic positions and are deeply intertwined to the domestic economy. Assets Energy & Utilities Total Value % Stake Value Value per share Remarks Malakoff 10, , MIDF Fair Value of RM2.17 Gas Malaysia 3, , MIDF Fair Value of RM2.78 Aliran Ihsan Resources Berhad Takeover price Ports & Logistics PTP 2, , WACC: 8%, Perpetual Growth: 1% Johor Port 2, , WACC: 8%, Perpetual Growth: 1% NCB Holdings Berhad 2, , WACC: 8%, Perpetual Growth: 1% SMART Tunnel WACC: 7%, Perpetual Growth: 1% Senai airport Acquisition 2009 Engineering & Construction Construction services 1, , x FY16 PAT MMC-Gamuda MRT1 (PDP) DCF MMC-Gamuda MRT2 (PDP) DCF Zelan Current market capitalisation Others Senai Development Land - Airport City 2, , ,718 RM20 psf Tanjung Bin Land 1, , ,255 RM20 psf Net Debt (Estimate) (4,237.99) (1.39) Company level debt add debt for NCB acquisition Total Value (RM mil) 30, , No. of shares 3, Value per Share 5.09 Discount (%) 40% Conglomerate discount Fair Value per Share (RM) 3.05 Current Share Price 2.06 Upside/Downside 48% Figure 13: Sum-of-parts valuation. (Source: MIDF Research)

12 12 Income Statement FY14A FY15F FY16F FY17F Revenue 8, , , ,585.9 Cash Flow Statement Operating activities FY14A FY15F FY16F FY17F Cost of sales (6,006.3) (3,421.7) (2,964.0) (3,085.5) PBT Operating Depreciation & (770.5) (456.9) (368.6) (387.0) expenses amortization Other income (22.9) (128.3) Chgs in working capital (165.8) (21.1) EBIT 1, , , ,135.3 Interest paid 1, Finance Cost (1,260.6) (800.3) (645.6) (642.0) Tax paid (266.9) (145.5) (101.8) (118.4) PBT Other items Taxation (81.3) (145.5) (101.8) (118.4) CF from Operations 3, , , ,394.6 Core PATAMI Investing activities Balance Sheet FY14A FY15F FY16F FY17F Capex (2,434.1) (1,500.0) (2,500.0) (1,000.0) Assets Dividends received Property, plant and equipment 21, , , ,786.1 Other items (3,400.0) - - LT investments CF from 2, , , ,341.2 and receivables Investments (1,947.9) (4,830.9) (2,430.9) (930.9) Other LT assets 13, , , ,239.2 Total noncurrent assets 36, , , ,366.5 Financing activities Net proceeds from borrowings 1,624.8 (900.0) 1, Receivables 2, , , ,380.5 Interest paid (1,260.6) (800.3) (645.6) (642.0) Inventories Other items (317.2) Tax recoverable & others Cash and cash equivalents Total current assets , , , , , ,611.2 CF from Financing Net changes in cash 47.0 (1,700.3) (442.0) 1,284.7 (3,744.0) (470.8) 21.6 Total Assets 45, , , ,977.7 Beginning cash 3, , , Ending cash 5, , Liabilities Loans and borrowings 24, , , ,156.4 Ratios FY14A FY15F FY16F FY17F Other LT liabilities 6, , , ,294.6 Total noncurrent liabilities Payable and accruals Loans and borrowings 30, , , ,450.9 Revenue growth 17.7% -38.2% -19.3% 5.0% PBT growth 253.3% -31.5% -30.0% 16.2% 2, , , ,217.6 PATAMI growth 120.5% -47.1% 23.7% 16.2% 1, PBT margin 10.1% 11.2% 9.7% 10.8% Other PATAMI margin 5.6% 4.8% 7.4% 8.2% Total current liabilities 4, , , ,141.3 ROE 4.8% 2.6% 3.3% 3.7% Total Liabilities 35, , , ,592.2 ROA 1.1% 0.8% 1.6% 1.7% Net gearing (x) Equity Book value/share (RM) Share Capital PBV (x) Reserves 7, , , ,450.1 Minority interest 2, Total Equity 10, , , ,385.5

13 13 4) INVESTMENT RISKS i) Severe downturn in the global economy affecting international trade. MMC s ports business which is involved in the development, management and operations of container terminals and cargo handling is dependent on worldwide trade volumes as well as import and export trade volumes in the region it operates. This in turn is impacted by changes in economic, financial and political conditions regionally or globally. Meanwhile, the ports business is also dependent on clients, namely shipping lines. When freight rates fall drastically, shipping lines may attempt to reduce costs by pressuring container terminal operators to provide a reduction in rates relating to container handling. ii) Unscheduled and prolonged shut down of power plants. Malakoff, MMC s energy associate company may be faced with breakdowns or failure in power generation equipment leading to unexpected maintenance needs unplanned outages or other operational issues. This will render them unable to operate while incurring additional costs for repairs. Such prolonged outages could be costly as seen in FY13 for the Tanjung Bin Power Plant. iii) Failure to bag new construction contracts. This affects the replenishment rate of its construction orderbook. Currently, the overall outlook on the construction sector remains upbeat with numerous upcoming infrastructure projects that are sizable being awarded by the government and private sector. However, a slower than expected rollout of these projects could negatively affect MMC. iv) Delay in the listing of MMC Ports. MMC faces the risk of a delay in the listing of MMC Ports should market sentiment deteriorate severely in FY16-FY17. This would delay MMC s in fully repaying the RM1.4b borrowing undertaken for the full acquisition of NCB Holdings Berhad which carries annual interest expense amounting approximately RM56m. In addition, MMC would have to increase its borrowings to carry out capex requirements for the ports as opposed to raising equity.

14 14 5) APPENDIX A) Background MMC Corporation Berhad (MMC) is a leading utilities and infrastructure group with diversified businesses under three divisions, namely energy & utilities, ports & logistics and engineering & construction. Under the energy & utilities division, MMC has a controlling stake in Malakoff Corporation Berhad (Malaysia's largest independent power producer), is the single largest shareholder of Gas Malaysia Berhad (sole supplier of reticulated natural gas in Peninsular Malaysia to non-power sector), and wholly owns Aliran Ihsan Resources Berhad (a water treatment plant operator). MMC's key businesses in its ports and logistics division include the operations of Port of Tanjung Pelepas (Malaysia's largest container terminal) and Johor Port (Malaysia's leading multi-purpose port). MMC also has a substantial shareholding in NCB Holdings Berhad which operates Northport in Port Klang and owns the largest container road haulage company in Malaysia. Through its associate stake in Red Sea Gateway Terminal Company Limited, MMC extends its operation in container port terminal in Jeddah Islamic Port in Saudi Arabia. MMC's engineering & construction division has further established itself in the sector following its leading role as the Project Delivery Partner (PDP) and underground works package contractor for the 51km Klang Valley Mass Rapid Transit (KVMRT) project (Sungai Buloh-Kajang Line). MMC has again been appointed as the PDP for the KVMRT Line 2 project (Sungai Buloh-Serdang-Putrajaya Line). MMC has also successfully completed the 329km Ipoh-Padang Besar Electrified Double Tracking Project as well as the innovative Stormwater Management and Road Tunnel (SMART) motorway, the first-of-its-kind dual-purpose tunnel in the world. MMC continues to make inroads in the construction industry, securing key civil and infrastructure projects in the country namely Langat Centralised Sewage Treatment Plant, Langat 2 Water Treatment Plant and civil and infrastructure works for RAPID Pengerang Co-generation Plant. Zelan Berhad in which MMC is the single largest shareholder, was also recently awarded the contract for the construction of material off-loading facilities jetty at Tanjung Setapa and a drawbridge in Kuala Terengganu. MMC owns and operates Senai International Airport, Johor Bahru, a major aviation hub and the main air transportation gateway to Iskandar Malaysia. Surrounding the airport is an area covering over 2,718 acres known as Senai Airport City which is being transformed into a major integrated industrial and commercial development. In addition to that, MMC has a 2,255-acre Free Zone Industrial Centre known as the Tanjung Bin Petrochemical and Maritime Industrial Centre. Tanjung Bin Petrochemical and Maritime Industrial Centre offers complete facilities and infrastructure for tankage and terminaling as well as trading and logistics. (Source: Company) B) Major Corporate History

15 15 C) Group Structure D) Key Management Team i. Dato' Sri Che Khalib Mohamad Noh, Group Managing Director. Dato' Sri Che Khalib Mohamad Noh, Malaysian, was appointed the Group Managing Director of MMC and Managing Director of Malakoff Corporation Berhad (Malakoff) on 1 July Prior to his current role, Dato' Sri Che Khalib served as Chief Operating Officer of Finance, Strategy and Planning at DRB HICOM Berhad. Prior to that, his most notably held the position as the President/Chief Executive Officer of Tenaga Nasional Berhad (TNB) on 1 July 2004 where he served TNB for eight years until the completion of his contract on 30 June During his tenure at TNB, Dato' Sri Che Khalib drove many improvement initiatives that resulted in TNB becoming one of the success stories in the GLC Transformation Programme. He shaped and set the corporate strategies for TNB when he came up with its 20 year strategic plan in September 2005.

16 ii. Mohd Shahar Yope, Chief Financial Officer. Shahar joined MMC Corporation Berhad as Director, Business Development & International Business on 4 August 2014 and subsequently assumed the position Group Chief Financial Officer effective 1 September Prior to joining MMC, Shahar was with Telekom Malaysia Berhad as General Manager, Business Finance. He began his career at Ernst & Young, Kuala Lumpur in 1988 and had since served in various organisations such as Gopeng Berhad, Lankhorst Bhd (now known as ARK Resources Berhad) and KUB Malaysia Bhd. In 2005, he joined Telekom Malaysia Berhad initially as their General Manager, Business Planning. Shahar is a Fellow of the Chartered Association of Certified Accountants (FCCA) as well as a member of the Malaysian Institute of Accountants (MIA). 2. Dr. Mabel Lee Khuan Eoi, Group Treasury. Dr. Mabel Lee, 59, a Malaysian is currently the Director of Group Treasury at MMC Corporation Berhad ( MMC ). Prior to joining MMC, she had worked with JP Morgan Chase s Kuala Lumpur office as Vice President of its Investment Banking Division. Dr. Mabel Lee is a Chartered Financial Analyst charterholder and holds a Bachelor of Accounting (First Class Honours) degree from University of Malaya, MBA (with Distinction) from University of Hull, United Kingdom and Doctor of Business Administration degree from University of Newcastle, Australia. She is a member of the Malaysian Institute of Accountants, a Member of the Asian Chartered Institute of Bankers, a certified Project Management Professional and is also a Certified Business Coach. (Source: Company) E) Revenue contribution by segment 13% 8% Electricity Generation Port Operations 17% 62% Engineering & Construction Others Figure 1: FY14 revenue contributions. Port operations will take over as main revenue generator in FY15 after listing of Malakoff. 16

17 17 is part of MIDF Amanah Investment Bank Berhad ( X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months.