Posted Date: March 13, 2020

MARC has affirmed its AA-IS rating on MMC Corporation Berhad's (MMC) RM2.5 billion Sukuk Murabahah Programme with a stable outlook.

The affirmed rating remains driven by MMC's significant strength in ports and logistics, engineering, and utilities operations that continue to be steadily strengthened. Underpinned by long-term concessions (ports and utilities) and sizeable government-related infrastructure contracts (engineering), its businesses provide strong earnings visibility. The rating is mainly moderated by MMC's consolidated leverage which has remained high following the consolidation of borrowings related to its recent acquisition of Penang Port. Its consolidated leverage is expected to remain moderately high over the near term as some of its port subsidiaries will remain more focused on undertaking planned capex programmes.

About RM1.6 billion has been earmarked for capex to expand capacities and improve operating efficiencies at its ports in the near term, and will be mainly funded internally. In 2019, the group refinanced RM1.0 billion borrowings at Penang Port through a sukuk issuance while the upcoming maturity of RM1.5 billion at Pelabuhan Tanjong Pelepas (PTP) is expected to be refinanced in 2020. Group borrowings stood at RM10.4 billion, translating to a debt-to-equity ratio of 1.04x at end-2019 (net-DE: 0.80x).

MMC's ports generally performed within expectations, handling about 55% or 7.1 million twenty-foot equivalent units of Malaysia's total container throughput in 1H2019. Its key port PTP remains a top 20 port in the world. Overall, the shifts in global shipping alliances had mostly impacted the container traffic volume of its Northport in Port Klang, although the decline has been largely offset by volume improvement in bulk cargo handling and local container shipments.

The group's sizeable engineering orderbook of RM9.3 billion as at end-1H2019 provides earnings visibility through 2022. Of this, the Klang Valley Mass Rapid Transit (KVMRT) Line 2 project accounted for a sizeable RM7.3 billion. Its gas distribution and power generation operations, under associate companies Gas Malaysia Berhad and Malakoff Corporation Berhad, have remained steady with regulatory changes in the domestic utilities sector not expected to have a major impact on their performance and therefore their dividend payment abilities. MMC also retains financial flexibility as the master developer of Senai Airport City, which comprises a combined 2,718 industrial and mixed-use land within the Flagship E of Iskandar Malaysia. Sale of land parcels would provide additional revenue source. Its liquidity is also supported by unencumbered cash balance of RM1.8 billion as at end-2019.

Group pre-tax profit rose sharply by 32% y-o-y to RM533 million in 2019, mainly on account of higher contributions from its port subsidiaries. Cash flow from operations increased to RM2.2 billion, providing interest cover of 3.8x. At the holding company level, dividends from its ports and utilities entities have been sufficient to meet the finance servicing obligations on borrowings of RM3.6 billion. Among its borrowings, RM360 million of IMTN maturing in 2020 is expected to be redeemed upon maturity.

Raj Shankar, +603-2717 2956/ rajshankar@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my

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