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

MMC group’s strong competitive strength and longstanding track record in key sectors of the economy, namely ports and logistics, engineering, and energy and utilities, remain the key rating drivers. The rating is moderated by the susceptibility of port operators’ handling volumes to global trade flows and the potential increase in borrowings at port subsidiary levels to fund periodic sizeable capex that may reduce dividend payments to the holding company.

For MMC group, the port and logistics division, with a combined container handling capacity of 22.9 million twenty-foot equivalent units (TEUs), remains the key earnings contributor. In 1H2024, MMC’s ports collectively handled 9.0 million TEUs of container cargo and 17.7 million freight weight tonnes (FWT) of conventional cargo. In terms of the engineering segment, the group had a modest outstanding order book of RM315.3 million as at end-June 2024 (1H2023: RM388.2 million). However, given the group’s engineering segment’s extensive experience in undertaking large civil infrastructure projects, the rating agency views that MMC’s engineering division is in a good position to secure large projects when the government rolls out its infrastructure plans. As of date, the group has tendered for several projects, including civil infrastructure projects for the federal government, in addition to some internal projects at Port of Tanjung Pelepas and Northport.

MMC’s energy and utilities segment comprises largely associate stakes in Bursa Malaysia–listed Malakoff Corporation Berhad (Malakoff) and Gas Malaysia Berhad. Malakoff has an effective generation capacity of 5,342MW in Malaysia (or about 20% of total generation in Peninsular Malaysia) from five power plants. Gas Malaysia group owns, develops, operates and maintains a distribution pipeline for the delivery of natural gas under a 20-year distribution licence expiring in January 2040.

In 1H2024, MMC group recorded revenue and pre-tax profit of RM2.4 billion and RM431.1 million (1H2023: RM2.4 billion; RM220.3 million). The higher profit was due to improved earnings from its major ports and from sales of industrial land in Senai Airport City in Johor. This, coupled with the improved share of profit from associates, have offset lower earnings from the engineering division following the completion of the Klang Valley Mass Rapid Transit (KVMRT) Putrajaya Line project.

At the holding level, pre-tax profit rose by 18.1% y-o-y to RM522.6 million, mainly on higher dividend income of RM682.8 million as at end-2023 from its port subsidiaries through MMC Port Holdings Sdn Bhd. Borrowings stood at RM2.9 billion with an adjusted debt-to-equity ratio of 0.54x; the adjustment considers the 75% equity credit accorded to the RM2.94 billion hybrid instrument issued to shareholder Seaport Terminal (Johore) Sdn Bhd as part of an earlier privatisation exercise. MARC Ratings anticipates that the upstreaming of sizeable dividends from operating entities will continue to support MMC’s financial obligations, notwithstanding capex undertaken by its major ports. The outstanding under the sukuk programme stood at RM2.3 billion as of end-September 2024; the next repayment of RM240 million is due in November 2025.