Wednesday, August 11, 2010

Questions for PTP as merger bid turned down

The failed rationalisation of the Port of Tanjung Pelepas and Johor Port may not affect the performance of MMC Corp much

The failed rationalisation of the Port of Tanjung Pelepas (PTP) and Johor Port may not affect the performance of MMC Corp Bhd much, but it does bring up the question of what will happen to PTP and its expansion plans.

Combined operations of the two ports contributed about 14 per cent of the group's revenue last year.

MMC Corp made a net profit of RM237 million on revenue of RM8.4 billion in the financial year ended December 31 2009.

"I doubt that any analyst has factored in the rationalisation of the two ports into MMC Corp's valuations. So it does not really affect the stock," said an analyst, who declined to be named.

According to OSK Research Sdn Bhd head of research Chris Eng, PTP has started dredging work for berths 13 and 14 as part of moves to increase the port's capacity. Currently, it has 12 container berths.

However, with only about 78 per cent of the capacity utilised and no added containers or shipping lines to be expected from Johor Port through the rationalisation, there does not seem to be a need for the expansion.

PTP is handling some 6.6 million boxes at present. It has a capacity of 8.5 million twenty-foot equivalent units (TEUs).

"They will have to hold back on expansion plans as there is still some spare capacity to work with now," Eng told Business Times last Friday.

He said that this could mean some capital expenditure in Johor Port instead, previously held back pending a decision on the rationalisation of the two ports to ease congestion.

"There are still a couple of bulk berths that can be converted into container berths (for expansion). There is a little bit of room to play for Johor Port," Eng said.

The announcement does not change his call on the parent of both ports, MMC Corp.

As Eng pointed out, the rationalisation was never factored in as he had anticipated the difficulty in consolidating the port operations.

MMC Corp owns 70 per cent of PTP and all of Johor Port. Ever since it bought over Johor Port in 2006, talk of rationalising MMC's port operations has been ongoing.

The plan had been to have PTP focus on containerised cargo, while Johor Port would handle bulk traffic.

It faced fierce opposition, however, from manufacturers who worried about higher transport costs.

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