KUALA LUMPUR: Seaport Terminal (Johore) Sdn Bhd’s (STJ) offer to privatise MMC Corp via selective capital reduction and repayment exercise at RM2 a share is fair, MIDF Research says.
Currently, STJ holds majority in MMC with stakes of 51.76%. The proposed exercise will be funded by way of an advance from the STJ to MMC.
“The offer price is RM2 for each MMC share. This translates to an implied valuation of circa RM6.09bil, with an implied price-to-earnings ratio (PER) of 16.7 times.
For comparison, MMC’s current market cap is at RM3.96b based on yesterday’s closing price. STJ offer is valid for all other shareholders of MMC, representing approximately circa 48.24% share capital worth RM2.94bil.
“Based on our calculation, the offer price is 54% premium of the current market value of MMC, ” it said.
MIDF Research pointed out MMC has never recovered from the pummeling it took back in 2017. During its heyday, MMC traded above RM2, a level it has yet to reach again since. The lowest price it reached was RM0.43, in March last year.
“We maintain our view that MMC is deeply undervalued. We believe that MMC is a ‘no-brainer’ pick for the economic recovery play.
“We postulate that MMC is ripe for value revision as the group has proven to be resilient amid the pandemic. Even relative to its historical valuation, MMC is currently trading at 10.4 times price-to-earnings ratio (PER) which is a discount to its five years blended forward PER.
“Comparatively, one standard deviation deviation below its mean stands at 10.1 times and average PER is at 12.9 times. Furthermore, it is also trading at a discount in comparison to its peers, where current average PER stands at 15.4 times.
“It is possible that limited visibility of MMC’s orderbook is one of the factors for the stock to be undervalued. Its orderbook visibility is only until 1QFY23, upon the expiry of Langat Sewerage Project.
“We believe that the much anticipated MRT 3, which MMC-Gamuda remains a favourite for the tender award wins, will be the catalyst for upward re-rating for the group. Notwithstanding this, we are pleasantly surprised that value revision comes faster than expected, albeit from a different kind of catalyst, ” MIDF Research said.