Analysts divided on MMC buying Penang Port

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KUALA LUMPUR: Analysts appear divided on the move by MMC Corp to buy a 49 per cent stake in Malaysia’s oldest port – Penang Port – for RM200 million.
According to a report in the Nikkei Asian Review, the proposed deal to buy the stake in Penang Port from Seaport dovetails into MMC’s aim to consolidate its port business and list it on the Malaysian stock exchange by end of 2017.

Seaport Terminal is MMC’s largest shareholder with a 52 per cent stake and it also fully owns Penang Port. MMC is a utilities and infrastructure company,

“We are positive on this development as it is in line with their (MMC’s) core growth strategy in the port and logistics industry,” the report quoted Kenanga Investment Bank analyst Adrian Ng as saying. “Furthermore, we deem the acquisition price fair.”

Analysts, including MIDF Amanah Investment Bank’s Tay Yow Ken, said interest expenses from fresh debt to fund the stake acquisition would erode earnings contribution from Penang Port, making the deal neutral to MMC’s earnings.

The Nikkei Asian Review report said brokerage UOB Kay Hian panned the deal, noting that the “sideways” share price performance year-to-date indicated investors had priced-in the potential risks involved.

The brokerage added that while there was potential for improvement in terms of port efficiency and economies of scale within the consolidated MMC port business, “the transaction is negative given the nature of the related party transaction as well as paltry earnings contribution”.

It kept its Hold rating on the share with a target of RM2.30.

MMC’s portfolio of ports includes Malaysia’s busiest container port, Pelabuhan Tanjung Pelepas in Johor and Northport in Selangor. The company also operates a small airport in Johor.

Penang Port is Malaysia’s third-largest port by container throughput volume.

The port handles over 1.2 million twenty-foot equivalent units of containers that make up 5.6 per cent of the total containers in Malaysia, the Nikkei Asian Review report said.

The deal is expected to be completed by the first quarter of next year, MMC said.

Penang Port is also required to sell its loss-making but iconic ferry service business, among other conditions under the purchase agreement.

“The proposed acquisition is in line with the initiative of the MMC to make further strategic investments in one of MMC’s core businesses and to strengthen the MMC’s financial performance and position,” the company said.

Shares of MMC rose 0.5 per cent on Monday to RM2.23 while the benchmark FTSE Bursa Malaysia KLCI ended 0.5 per cent higher.