Reflections on Volume

Big volume without further upside equals distribution
Big volume without further downside equals accumulation

Volume tends to peak at turning points
Volume often precedes price movement
Volume is a relative study

Sunday, September 5, 2010

MMCCORP - Winds of Change

Initiate coverage with buy call at RM2.53 and target price RM3.20

MMC, an integrated utilities and infrastructure player, is strongly leveraged on Malaysia's improving economy (1H2010 GDP 9.5% year-on-year). For example, container volume at PTP and Johor Port are up 13% and 5% y-o-y for year-to-date June, passenger traffic at Senai airport is resilient at 1.4 million, Malakoff IPP's average despatch factor is 50% (against 49% in 4Q2009) and Gas Malaysia's volume is up 14% for 1H2010.

The company is a strong proxy to Iskandar Malaysia, which makes up an estimated 68% of MMC's sum-of-parts (SOP) value. It owns two ports ' PTP and Johor Port, the only airport, located in Senai, 16 water treatment plants, and a landbank of 4,296 acres. Completion of key infrastructure projects by 2012, such as Legoland, the Newcastle University Medicine Malaysia Campus in EduCity and Marlborough College will yield steep appreciation potential in land values. We estimate every RM5 psf rise in land value will raise our SOP valuation by 8%. Recent transactions by EQ solar and MOX valued raw land at RM25 psf with infrastructure. Improving relations between Singapore and Malaysia could also offer substantial development opportunities, such as a rapid transit system between Tanjung Puteri in JB and Singapore, bullet train and/or a third link to Singapore. This will see land values reflate.

Alternative proxy to MRT. Key to its construction arm will be the MMC-Gamuda JV bid for RM36 billion MRT project in Kuala Lumpur.

If it comes to fruition its order book will triple and add another 17 sen per share to its SOP. Other potential projects include other road-based projects and replicating the SMART tunnel in other states. We assume every RM1 billion increase in new order wins will raise our SOP valuation by 4%. It is the only construction-related stock included in the KLCI FBM 30 and should command some IPP premium with the delisting of Tanjong. ' HwangDBS Vickers Research, Sept 2

This article appeared in The Edge Financial Daily, September 3 2010.

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