OSK: MMC subsidiaries, except Malakoff, valued at way above our estimate

PETALING JAYA: The estimated value of the three companies to be spun off by MMC Corp Bhd has surprised analysts. On Monday, MMC announced its intention on possible listing of Gas Malaysia Sdn Bhd, Malakoff Bhd and Johor Port Bhd, with an estimated combined market capitalisation of up to RM14bil. As it stands now, MMC's group managing director Datuk Hasni Harun guided that Malakoff was worth some RM7bil, Gas Malaysia RM5bil and Johor Port between RM1.5bil and RM2bil. [You must be registered and logged in to see this image.] MM C values susidiary Johor Port at RM1.5bil to RM2bil, way above OSK Research’s estimate.
“While
the listings themselves are not surprising, the potential market
capitalisation of the three companies as stated by MMC are somewhat of a
surprise other than for Malakoff,” OSK Research head Chris Eng said. Based
on these market capitalisation values, he said, Malakoff would be close
to its current valuation for the independent power producer (IPP) but
Gas Malaysia and Johor Port would be worth almost double what it
currently valued them. The research house put a value of RM2.54bil on
Gas Malaysia and RM994.3mil for Johor Port. However, Kenanga
Research said there was a lack of details on the valuation, but opined
that the RM5bil market capitalisation of Gas Malaysia would “somewhat
fetch a premium” with its valuation. “Based on the last
privatisation price tag at RM10.35 per share in 2007, we believe that
the estimated market capitalisation of RM7bil is in line with our
sum-of-parts valuation of RM7.3bil (net-off debts),” it said. OSK's Eng expects Gas Malaysia be listed by end-2011 while Kenanga Research expects the listing in June. “The
sentiments will be positive for MMC as it will be able to raise cash to
pare down its significant debts. However, we will have to see the
structure on the dilution of its shareholdings in these companies. We
expect the listing of Malakoff to be sometime in 2013,” Eng told StarBiz on Monday. The
proposed listing of Johor Port, however, was a surprise as the original
idea was to merge with Port of Tanjung Pelepas (PTP) then list the port
division. Eng said if the valuations were done at MMC's guidance
to merely pared down its stakes to 30% in Gas Malaysia, 30% in Malakoff
and 70% in Johor Port, some RM2.6bil could be raised. “MMC could turn from a net debt of 243% gearing to net cash as Malakoff's debts would no longer be in its books,” he said. Analysts said the listing of MMC's units would be good as it would be able to raise cash to pare down its significant debts. They said MMC's previous bid on PLUS Expressways Bhd was seen as a difficult task given its burgeoning debt. “We
believe these would benefit MMC in paring down its debts and enable its
subsidiaries to finance their future expansion plans. Thus far, we
understand that the Tanjung Bin project could be worth at around
RM7bil,” Kenanga Research said. According to various reports, MMC
carried 2.4 times gearing on its books based on borrowings and debt but
much of MMC's leverage was ring-fenced around the cash flows of
Malakoff and its own gearing was 0.8 times. The bulk of its
borrowings resides in Malakoff and its ports, and these borrowings are
structured such that the obligations are ring-fenced and secured. Most
of the borrowings are contained at the subsidiary level, where about
80% of the group debt involves project financing and is related to its
concession for IPPs and ports.