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. 

The key rating drivers for the affirmation are MMC’s competitive strength and longstanding track record in key sectors of the economy, namely ports and logistics, engineering as well as energy and utilities. The rating is moderated by the susceptibility of port operations to negative movements in global trade volume, and the potential increase in borrowings at port subsidiary levels which could reduce dividends to the holding company level.

MMC’s ports and logistics segment remains the group’s key earnings driver. With a combined container handling capacity of 21.5 million twenty-foot equivalent units (TEU), MMC is the largest port operator in Malaysia and among the top 10 port operators in the world. Its domestic ports have long track records and operate under long concessions that span through 2055. In addition to being located along the important global trade route of the Straits of Malacca, the ports have also benefitted from MMC’s continued investments to strengthen operations and infrastructure. The ports collectively handled 7.6 million TEUs of container cargo and 16.7 million freight weight tonnage (FWT) of conventional cargo in 1H2023.

The group’s engineering segment is seeking to replenish its order book of RM388.2 million as at end-June 2023 from key infrastructure projects, namely the Klang Valley Mass Rapid Transit (KVMRT) Line 3 and the Light Rapid Transit (LRT) project in Penang. MMC has placed a bid in work packages for the KVMRT Line 3 project, which are expected to be awarded by end-2023 barring any further delays from the government. The Penang LRT project is expected to be opened for tender in 1H2024. MARC Ratings views MMC’s demonstrated track record on major infrastructure projects will place the group in a good position to secure contracts.

MMC’s energy and utilities segment includes investments in associates, namely 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) comprising five power plants through four subsidiaries and a 40%-owned associate. Gas Malaysia is an investment holding company whose subsidiary owns, develops, operates and maintains a distribution pipeline for the delivery of gas under a 20-year distribution licence ending January 2040.

For 1H2023, the group recorded lower pre-tax profit of RM220.3 million (1H2022: RM463.5 million) on the back of RM2.5 billion revenue (1H2022: RM2.4 billion). Earnings during this period was mainly impacted by share of loss amounting to RM161.0 million at its 37.6% associate, Malakoff. This was due to net negative fuel margin during the period resulting from a steep decline in coal price from its peak of US$404/MT as at end-2022. Notwithstanding this, group earnings are expected to improve as the coal price has stabilised to US$121/MT as at end-October 2023 (end-June 2023: US$128/MT), and higher contributions from its engineering segment are expected following order book replenishment.

At the company level, the lower revenue of RM1.2 billion in 2022 was due to reduced construction earnings following the near completion of the KVMRT Line 2 project. It generated dividend income of RM546.3 million in 2022, mainly from its port subsidiaries. Borrowings increased to RM3.1 billion as at end-2022, following a RM300 million issuance under the rated programme in November 2022; the proceeds have been utilised to repay borrowings of RM330 million at its subsidiary in 2022. As such, debt-to-equity ratio increased slightly to 0.59x as at end-2022 (end-2021: 0.55x), adjusted for 25% debt portion of the RM2.94 billion hybrid instrument issued to shareholder Seaport Terminal (Johore) Sdn Bhd. MARC Ratings expects upstreaming of dividends to the shareholder will remain in tandem with its financial obligations. The outstanding under the sukuk programme stood at RM2.3 billion as of end-October 2023.

Umar Abdul Aziz, +603-2717 2962/ umar@marc.com.my

Cyndy Goh, +603-2717 2941/ cyndy@marc.com.my

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