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

MMC’s significant competitive strengths in the engineering, ports and logistics segments that have translated to strong earnings generation remain key rating drivers. This is supported by steady earnings from its energy and utilities segment. These strengths have enabled the group to weather the current uncertain economic environment which was impacted by the COVID-19 pandemic. 

MMC’s port segment has been largely cushioned by the pandemic crisis as reflected by a marginal growth of 0.9% y-o-y in 9M2020 for the group’s combined container handling volume. This was largely due to strong handling volumes recorded in 1Q2020 which moderated the impact in 2Q2020, followed by a subsequent recovery in 3Q2020. In light of the prevailing challenging economic and industry outlook, the group has also been selectively prioritizing the near-term capex of its ports. 

Construction projects under the group’s engineering segment experienced a slow down during the movement control order (MCO) period, resulting in lower progress billings and revenue. However, earnings from this division were supported by improved margins due to MMC’s ability to manage its construction costs particularly for the Klang Valley Mass Rapid Transit Line 2 project and Langat Sewerage project. As at end-June 2020, MMC’s construction order book of RM4.9 billion provides earnings visibility through 2022. 

Its utilities operations, undertaken by associate companies Malakoff Corporation Berhad (Malakoff) and Gas Malaysia Berhad, have remained stable. Regulatory changes in the natural gas distribution mechanism and the domestic power sector are not expected to have significant impact on the group’s utility businesses given its entrenched position in the sector. Both entities have collectively upstreamed annual dividends of between RM90 million and RM166 million over the past four years. 

For 9M2020, group pre-tax profit increased by 7.6% y-o-y to RM366.7 million on revenue of RM3.2 billion, largely due to higher volume handled at its ports and improved contributions from its associate companies. Consolidated cash flow from operations remained strong at RM1.44 billion, largely driven by ports operations. Group leverage, which remains a moderating rating factor, declined slightly to 0.98x (2019: 1.03x) on lower borrowings of about RM10.0 billion, although the strong cash balance of RM2.8 billion translated into an improved net DE of 0.70x (2019: 0.79x).

The stable outlook reflects MARC’s expectation that the group’s ports and key business segments will exhibit comparable y-o-y performance, which would enable MMC to continue generating fairly steady earnings. The group is expected to maintain its key financial metrics which are in line with the current rating band.

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

Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my