GSM 5113 Operations Management

Case Study: MMC Corporation Bhd.

Transforming and Changing Core Business due to Declining Profits
by
Jahirul Islan si! "#BS 13$1$%%&
Saadia ther "#BS 1311$%'&
(ong Chee )eung "#BS 13$1$*3&
+ur,an -apu "#BS 13$5$.$&
/iala 0a,ieddine "#BS 13$5$.3&
1Im Ch2ee Guan "#BS 1311$1'&
3
INTRODUCTION
First founded in London as Malayan Tin Dredging Limited in 1911, the Company
transferred its headquarters to Malaysia y incorporating Malayan Tin Dredging Berhad !MTD"
in 19#$, then the largest tin dredging group in Malaysia% &n 19'1, MTD merged (ith )e(
Trade(inds *dn Bhd (hich had earlier ta+en o,er London Tin Corporation !LTC", the (orld-s
largest tin mining company, adopting the name Malaysia Mining Corporation Berhad to ecome
the (orld-s largest integrated tin producer% The Company (as listed on the Bursa Malaysia on
1. /uly 19##%
&n 19'0, the Company needed some changes in mining operations in Malaysia ecause
of increasing operational costs, lo( tin grades, shortage of laor and the shrin+ing demand for
tin (orld(ide% &t decided to stop tin mining operations in Malaysia% 1o(e,er, it maintained its
gold and diamond mining operations in 2ustralia% &n 199# the company (ent in merger (ith
1omesta+e Mining Company (ith Plutonic (hich resulted in the Company-s associate interest in
Plutonic eing replaced y an in,estment sta+e in 1omesta+e% MMC sold its sta+e in
1omesta+e in 199' and its sta+e in 2shton in .333% &n .333, &mpian Teladan ought 19%94 of
MMC5s shares% 2s for MMC, it acquired 63%14 of PTP and it also acquired of ..%.4 of Mala+off
in .331%
By .333, the MMC had decided to change and reranded itself from a mining company
to a more di,erse holding company% The financial year ended 01 /anuary .333 has een a year
of consolidation for the MMC 7roup% Before that MMC had faced declining re,enue from its
mining operations as (ell as the financial crisis of 199# had hit its engineering and construction
operations hard% Figures for 199' indicated MMC posted a consolidated loss of M891'$%.
million !after ta:" and a loss of earnings per share of ..%0 cents% Mining assets for the year
1999 to .333 (ere reduced from M8913.,#'9 million to M89;1,$;'million (ith nearly
M89$#,6.$ million eing (ritten off% &n the year .333, MMC had an operating loss of aout
9M$million% The losses (ere offset y the sale of its other in,estments totaled at 9M.;6million
in .333 and 9M$# million in 1999% &n 199', MMC sold of its shares of 1omesta+e Mining
Corporation for 9M669 million to ma+e up for its losses% The ad,ent of the ne( millennium
(itnessed further impro,ement in the Malaysian economy after the financial crisis of 199# and
indications are that reco,ery is firmly on trac+ and is road ased% Mining (as not a feasile
option anymore due to stiff competition, limited opportunities (ithin Malaysia, and declining
profits% Therefore this lead to its transformation from a mining oriented company to a more
di,erse operations company% Today, MMC is focused on its ,ision of ecoming a premier utilities
and infrastructure group%
1
COMPANY PROFILE AND OPERATIONS
MMC Corporation Berhad is currently a utilities and infrastructure company, (hich deals
(ith transport and logistics, energy and utilities, and infrastructure% For the year ending .310,
MMC posted total income of M89#%;6 illion (ith net profit of M89..'%$ million and its total
assets (orth ;3%0 illion% 2 detailed distriution of asset has een sho(n under Illustration 1%
MMC also has aout .%9; thousand employees%
<e shall no( e:plore MMC-s core usiness pro=ects elo(%
Core Businesses & Products> Their +ey usinesses are operator of container terminal and
port, largest independent po(er producer% &nfrastructure and construction, and Peninsular
Malaysia-s sole supplier of natural gas to the non?po(er sector% @n the international front, their
focuses are on utilities and logistics sectors% They are the =oint master de,eloper of the /aAan
Bconomic City in the Cingdom of *audi 2raia%
Their main core usinesses are related (ith Ports D Logistics, Bnergy D Etilities and
Bngineering D Construction%
1% Ports & Logistics: Their transport D logistics sector range from seaport usinesses oth
domestically and internationally, airport D air logistics and the *M29T motor(ay%
Pe!"u#!n T!n$ung Pee%!s> MMC-s strategic acquisition of a #34 equity interest in
PTP is e:pected to dri,e the 7roup-s long?term earnings gro(th in the Ports D Logistics
sector% &t has also gi,en MMC a controlling sta+e in a (orld?class port and Malaysia-s
leading port operations% PTP has recorded a phenomenal gro(th since commencing
operations in .333, and handled #%# million TBEs in .31.% 2 historical sales data of PTP
has een illustrated in Exhibit 1
&o#or Port: <ith the acquisition of /ohor Port, MMC o(ns t(o strategic ports located in
/ohor, (ith a potential comined capacity of 13 million TBEs% /ohor Port started
operations in 19## and is today, Malaysia-s leading multi?purpose terminal, handling oth
containeriAed and ul+ cargo%
Sen!i Air%ort Ter'in! Ser(ices: &n .339, follo(ing the acquisition of *enai 2irport
Terminal *er,ices *dn Bhd !*2T*", MMC (idened its in,ol,ement in the transport and
logistics usiness into the area of air logistics% *ultan &smail &nternational 2irport, also
+no(n as *enai &nternational 2irport is the main gate(ay to &s+andar Malaysia%
Red Se! )!te*!+ Ter'in!: 9ed *ea 7ate(ay Terminal !9*7T" is the third and latest
(orld?class container facility at /eddah &slamic Port, *audi 2raia-s )o% 1 port% 9*7T-s
strategic location ma+es it an o,ious choice for shipping lines (ith large transshipment
,olumes (hich also require easy access to *audi 2raia%
.% Energ+ & Utiities: MMC is a +ey player in po(er generation% They are also Malaysia5s sole
supplier of natural gas to the non?po(er sector and the largest supplier of treated (ater in
/ohor% They are also a leading gas engineering consultancy to the oil D gas and petrochemical
industries in Malaysia and the region%
$
M!!,o--: MMC5s in,ol,ement in the Bnergy D Etilities sectors is spearheaded y
Mala+off, the nation5s largest &ndependent Po(er Producer !&PP" (ith an e:tensi,e
net(or+ of po(er plants strategically located throughout the Peninsular Malaysia% &n May
.33#, MMC completed the 9M9%0 illion purchase of Mala+off usinesses, (hich is the
largest in the history of Malaysia5s merger and acquisition% <ith the completion, MMC
o(ns 614 of Mala+off shareholding%
)!s M!!+si!> MMC is in,ol,ed in natural gas distriution ,ia its 03%904 effecti,e
interest in total energy solutions pro,ider 7as Malaysia% 7as Malaysia Berhad pro,ides
a clean, efficient, cost?effecti,e and uninterrupted supply of natural gas and liquefied
petroleum gas to industries, commercial usinesses and homes% Exhibit 2 sho(s the
historical sales data of 7as Malaysia%
Air!n I#s!n Resources Ber#!d: MMC estalished its footprint in the (ater industry
(ith its (holly?o(ned susidiary 2liran &hsan 9esources Bhd !2&9B"% This allo(s MMC
to le,erage on 2&9B-s e:pertise to gro( its utilities usiness oth locally and
internationally and enale it to e an integrated (ater and po(er producer% 2&9B is one
of the largest suppliers of treated (ater in Malaysia, (ith a portfolio of 1$ (ater
treatment plants (ith a comined capacity of $1$ MLD%
0% Engineering & Construction: MMC has a strong trac+ record in the engineering D
construction sector% They are currently underta+ing the 9M1.%6 illion electrified doule trac+ing
rail(ay pro=ect et(een &poh and Padang Besar, Malaysia5s largest infrastructure pro=ect%
.!ng /!e+ M!ss R!%id Tr!nsit: The Mass 9apid Transit !M9T", part of the Bconomic
Transformation is o(ned y the 7o,ernment of Malaysia through M9T Corporation%
MMC 72MED2 CFM9T !T" *D) B1D (as a(arded to design and construct the
underground (or+s of M9T% MMC 72MED2 /oint Fenture *dn Bhd is a =oint ,enture
company et(een t(o Malaysia largest engineering construction groups%
Eectri-ied Dou"e Tr!c,ing R!i*!+ Pro$ect: The Blectrified Doule Trac+ing 9ail(ay
pro=ect is a 0.9?+m northern rail(ay pro=ect that integrates (ith Ceretapi Tanah Melayu
Berhad5s main line from &poh to /ohor Bahru% The pro=ect is carried out y MMC?7amuda
/oint Fenture *dn Bhd, is a 63>63 =oint ,enture company et(een MMC and 7amuda
Berhad%
Stor'*!ter M!n!ge'ent & Ro!d Tunne 0SMART Tunne1: *M29T? The first and
one of a +ind dual?purpose tunnel in the (orld% *M29T represents an inno,ati,e and
unique solution to the Malaysian capital5s long?term traffic and flooding prolems%
Po*er %!nts !nd in-r!structure> The Company is also in,ol,ed in po(er transmission
lines, sustations, airports, hospitals, marine engineering structures, high(ays, ridges,
foundation and geotechnical (or+s%
Ot#ers: MCC also in,ol,e (ith other acti,ities ut may not e considered as their core acti,ities
li+e airport operations, freeAone de,elopment, and operator of Tusder container terminal at
/eddah port%
M!r,et An!+sis
3
*ince MMC has di,erse usiness operations, a mar+et analysis of its three core
operations (ill e done% This is in po(er generation and electricity, construction and
infrastructure, and logistics !in particular port facilities"% 2ccording to Business Monitor
&nternational !BM&", electricity generation in Malaysia (ill continue to gro( y ;%#4 in .31;% The
results are lo(er than .310 due to poor economic outloo+ as (ell as an impending increase in
the price of electricity% Long term outloo+ remained optimistic at ;%64 gro(th per annum from
.310 to .3.0 due to modest economic gro(th to dri,e the consumption of electricity% This
gro(th potential is encapsulated in the go,ernment-s Bconomic Transformation Program !BTP"%
The program is aimed at attracting economic in,estment et(een .311 and .3.3% *hould this
e realiAed then, the electricity demand for the region should raise% This odes (ell for MMC as
it is one of the &PP companies !,ia Mala+off"% Therefore MMC-s outloo+ remains optimistic in
this field%
Logistics field is e:pected to gro( y 9%64 in Malaysia according to Ministry of
&nternational Trade and &n,estment !M&T&"% Malaysia-s total cargo ,olumes are e:pected to gro(
at a moderate pace and cargo sea ,olume is e:pected to gro( y 64 in .310% 1o(e,er it (as
noted that ma=ority of Malaysia-s cargo (as concentrated in Port Clang% 1o(e,er MMC e:pects
that the port and logistics ranch of their usiness (ill continue to gro( ut (ith decreased
income from its operations due to rising costs% The continued importance of the port is assured
due to the closeness of Port of Tan=ong Pelepas to the &s+andar Bconomic Gone% 1o(e,er (e
ha,e to ta+e into account of competition from Port Clang as (ell as the competition from
*ingapore% 1o( this plays out (ill depend largely on strategies employed y all these entities
and the requirements of local industries% From no( its role in the logistics sector remains
competiti,e and su=ecti,e to the economic conditions of the region and rising costs of
operations%
The construction and infrastructure industry of Malaysia depends largely on the
go,ernment of Malaysia especially on large infrastructure pro=ects !e%g% M9T, tunnel
constructions, high speed rail, etc%"% Pro=ected construction gro(th for Malaysia, done for 2sia
Construction @utloo+, is at ;%64 per annum (ith &ndia leading at '%94, China and /apan at
#%$4% &n a sur,ey conducted for a long term outloo+ !aout 13 years" construction industry in
2sia (ill remain roust and strong% Locally, infrastructure gro(th is e:pected to e sustained y
mass affordale housing schemes as (ell as economic de,elopment corridor programs% &n
addition, the Bconomic Transformation Program !BTP" pro=ects including the Clang Falley Mass
9apid Transit system, Light 9ail Transit e:tensions, Petronas 9apid Transit comple:, and
&s+andar de,elopment region in /ohor (hich (ill e enhanced y 9T* transit lin+ et(een
<oodlands, *ingapore and /ohor Bahru, (ill further pro,ide gro(th for the construction and
infrastructure industry% 2ll these pro=ects (ill pro,ide impetus for gro(th for MMC as it has
sta+es and contracts in these pro=ects pro,ided y the go,ernment% 1o(e,er o,er the coming
years, the impact of these (or+s (ill need to e monitored particularly in terms of ho( increased
acti,ity (ill affect the a,ailaility of engineering and construction companies and resources, as
(ell as the a,ailaility and prices of materials and laor !pg 1;, 2sia Construction @utloo+ .310
report"% Long term gro(th in construction is e:pected to e at 64 per annum and the focus to
the end of the decade is on impro,ements to the transport infrastructure in Peninsular Malaysia
*
(ith se,eral large pro=ects in Cuala Lumpur and outlying states% The mar+et outloo+ for the
construction and infrastructure to e roust and positi,e due to attracti,eness of these pro=ects
to the international mar+et for materials and e:pertise% MMC is e:pected to enefit from these
largesse due to its close connections and e:perience (ith the current go,ernment%
&n addition to a mar+et analysis of the industries that MMC is in,ol,ed in, (e ha,e also
conducted a *<@T !*trength, <ea+ness, @pportunity, Threats" assessment% Belo( is the tale
for the *<@T%
LOGISTICS & PORT - SWOT ANALYSIS
Strengths
- Strategi4 lo4ation
- Good 4onne4ti5ity 2ith roads
and rail
- Ser5ing a populous and dynami4
e4onomi4 area
- 6e4ei5es 7nan4ial assistan4e
!rom Go5ernment
Weaknesses
- 1a4, o! maintenan4e o! port
!a4ilities
- 8o spa4e !or e9pansion
- bsen4e o! assistan4e !rom the
+ederal go5ernment to dredge
4hannels
- 1imited 4apa4ity and 4apability
to handle greater 5olume and
more 5ariety o! 4argo
Opportunities
- Gro2th prospe4t o! intra:sian
trade
- Gro2ing transshipment 5olumes
- 1ot o! ;9pansion plans !or all
Malaysian ports
- 1ogisti4s 7eld is e9pe4ted to
gro2 by ..5< in Malaysia
Threats
- #ro9imity to Singapore #ort
2hose dominan4e as a mega
hub port in the region poses
,een 4ompetition
- Illegal landing points and pri5ate
=etties
5
ENERGY & UTILITIES - SWOT ANALYSIS
Strengths
- Good physi4al in!rastru4ture
- 0he go5ernment has re4ently
gi5en the go:ahead to begin
identi!ying suitable sites !or
the4ountry>s 7rst nu4lear po2er
plant
- Malaysia>s sole supplier o!
natural gas to the non:po2er
se4tor and the largest supplier o!
treated 2ater in Johor
Weaknesses
- 0he 4ountry>s energy se4tor is
set to be4ome more 4ompetiti5e
- In4rease in ele4tri4ity pri4es
- 1ot o! go5ernmental restri4tions
Opportunities
- Gas produ4tion in4reased in the
1..3s "11<?year&@ !rom 1' b4m
in 1..3 to *5 b4m in $333.
- 0otal energy 4onsumption
in4reased at a rapid pa4e o!
*.*<?year
- ;le4tri4ity generation 2ill
4ontinue to gro2 by *.'< in
$31*
Threats
- #etronas is the main player both
in natural gas produ4tion and on
the 18G mar,et
CONSTRUCTION & INRASTRUCTURE - SWOT
ANALYSIS
Strengths
- 0he 8e2 /e5elopment #oli4y
and Aision $3$3 "!rom 1..1
on2ards&
- MMC has a strong tra4, re4ord in
the engineering B 4onstru4tion
Weaknesses
- Cigh dependen4e to
go5ernmental regulation
- #o2er o! 4ompetitors
D
se4tor
- Spe4ialist 4ontra4tors !or po2er
plant pro=e4ts
Opportunities
- 0he gro2th o! the 4onstru4tion
industry !ell !rom 1*.$ per4ent in
1..D to ..5 per4ent in 1..'.
Constru4tion gro2th !urther !ell
to E$* per4ent in 1..%
- Constru4tion o! ne2
in!rastru4ture pro=e4ts bet2een
$33':$311 resulted in an
a5erage gro2th rate o! 5..<
- +or $31$@ the se4tor e9panded
strongly by 1%..< in the 7rst
hal! o! the year supported by
strong a4ti5ities in the
residential and 4i5il engineering
subse4tors
Threats
- +rom $333 to $33D the
4onstru4tion se4tor gre2
marginally by 3.'<
- Similarity 2ith some 4ompetitors
&n conclusion of this mar+et analysis of po(er, logistics, and infrastructure, MMC is e:pected to
gro( and enefit from these forecasts% &t is (ell positioned and has the e:perience from its
pre,ious pro=ects to gro( in these areas%
Co'%etitor An!+sis
*ince MMC has a fe( core usinesses it is necessary to di,ide its competitors to a fe(
companies according to industry% )amely (e (ill concentrate on +ey players in Malaysia of
these industries% For the port industries MMC-s +ey competitors is <estport and )orthport%
Both of these are located in Malaysia% 2part from due to its closeness to *ingapore, Port of
Tan=ong Pelepas faces stiff competition from *ingapore% 1o(e,er (e (ill e only concentrating
on )orthport and <estport ecause (e (ill need to discuss aout its other competitor in other
fields as (ell% To do a competitor analysis of MMC (hen it comes to construction and
infrastructure (e (ill ta+e an e:ample of &/M Bhd% as (ell as 8TL Corp% Bhd% 8TL Corp Bhd% &s
also similar to MMC as it is also an &PP producer in Malaysia as (ell% MMC and 8TL are oth
+ey players in &PP in Malaysia% By doing a competitor analysis of these companies (e (ill see
ho( good MMC is performing% First (e (ill see ho( much capital they ha,e and ho( they are
doing in relati,e to MMC% 2s MMC is a holding company it is eyond the scope of this paper to
analyAe all its financial and operational operations% <e are (ell a(are of the limitations of our
competitor analysis as (ill e comparing in certain instances a holding company as compare to
a company concentrated in a certain field% For e:ample, )orthport and <estport are
'
concentrated on port management and does not ha,e other +no(n core operations, unli+e
MMC%
2ccording to mar+et e,aluation of Financial Times !on .9 March .31;", MMC
Corporation Bhd% has aout 036 million common shares issued in the CL*B !2,erage Price>
9M.%$3 per share"% )et income for MMC is at 9M ..'%$$ million do(n from pre,ious year-s
forecasts (hich is due to increasing costs, (ith total re,enue of aout 9M#%;6illion% 9eturn of
equity !9@B" at 0%.14 and 9eturn of in,estment !9@&" at 1%0;4 Consensus forecasts y its
analyst suggested that it (ill outperform the mar+et and ad,ised in,estors to +eep its shares%
Therefore MMC is doing comparati,ely (ell for a company that siAe%
8TL Corporation Bhd% is similar to MMC% 8TL has operations in utilities as (ell as
construction and represents a holding company (ith another interest as (ell% &t also has
interest in information technology, hotel and restaurant operations, cement manufacturing and
trading, property in,estment and de,elopment, and management ser,ices% &n po(er utilities, it
and MMC represent t(o ma=or +ey players as an &PP and a competitor in the field of
infrastructure and construction de,elopment% 8TL has aout 1,3#; million common shares
issued in the CL*B !2,erage Price> 9M1%63 per share" generating aout 9M19%9illion and net
income of 9M1%0; illion % The 9@B and 9@& for 8TL is 13%6$4 and 6%304 respecti,ely%
Consensus among analyst is that 8TL (ill outperform as (ell% 8TL has international operations
around the (orld%
2nother competitor for MMC in the construction and infrastructure industry is &/M
Corporation Bhd% Compared to MMC, &/M has etter 9@B and 9@& !1;%94 and 13%1$4
respecti,ely"% &t-s strength lies in construction, property de,elopment, and in,estment holding
acti,ities% &t has 1,0'0 million shares eing traded at an a,erage of 9M$ per share% &n terms of
capital it outstrips oth 8TL and MMC% 2nalyst suggested that &/M is a good company to in,est
in and (ill remain strong in the construction mar+et therefore a stiff competitor to MMC% &t has
more e:perienced in construction pro=ects compared to MMC and etter position financially to
compete (ith it%
For the ne:t competitor analysis (e (ill loo+ at competitors in the port facilities% Firstly
(e (ill loo+ at <estport 1oldings Bhd% <estport 1oldings Bhd% is the operator for <estport in
Port Clang% <estport 1oldings Bhd% 1as aout 0;1 million common shares eing traded at an
a,erage price of 9M.%63 per share (ith analyst predicting the <estport to hold its status%
<estport 1oldings Bhd% (as =ust recently listed on CL*B on 1'
th
@ctoer .310 and therefore
has no rele,ant 9@& and 9@B data% )CB 1olding Bhd% is the holding company for )orthport%
)orthport !Malaysia" Bhd% (hich operates )orthport is a susidiary of )CB% &ts core operations
are port and logistics operations% &t has ;#0 million shares eing traded and has seen a drop in
its shares- prices to 9M0%19% 2nalyst is of the opinion that )CB are ha,ing prolems (ith its
logistics di,ision and the consensus is to hold the shares for long term in,estment%
Trend analysis of their share mar+et performance for 8TL, &/M, and MMC indicated that
MMC and &/M are doing slightly etter than 8TL% Profit margin !ta+en from
%
http>HH(((%malaysiastoc+%iA" sho(s that MMC has a steady increase in profit margin until last
year (here it drops proaly due to increase in costs and re,enue sources% 8TL has posted
continued steady gro(th in profit margin although total re,enue has dropped in .310 (hile &/M
continue to do (ell and has continued to post consistent profit margin (ith increased margin in
.310% )CB posted continued gro(th that has ta+en a sharp drop last year proaly due to
contract rene(al of port lease (ith the go,ernment and non?performance of their logistic
di,ision% <estport trend remain stale since its listing on the stoc+ e:change% Trend analysis of
all of MMC and its competitors re,ealed that this industry depends on a monopolistic
competition and go,ernmental support of infrastructural pro=ects%
MMC core operations are capital intensi,e and can e said monopolistic competition%
Monopoly is defined as a mar+et structure (ith significant arriers to entry% &n this case, po(er
utilities, infrastructure, and port facilities are capital intensi,e and the mar+et share is di,ided y
a fe( companies (ith the capital, assets, and the e:perience to do so% Barriers to entry is high
for these industries and ser,ices% The monopolistic competition is also mainly due to the
economies of scale of the industry there are in% Therefore the mar+et for these operations
depend largely on company strategies to ma:imiAe profit and minimiAe costs% 9eturns to these
pro=ects (ill al(ays depend largely on mar+et forces, forecasting, and company strategy%
Mar+et forces dictate the cost and if the costs go up !for e:ample fuel price" it (ill affect the net
income of the company% MMC and its competitors are al(ays faced (ith these challenges and
the aility to circum,ent these challenges (ill see (hich company can profit the most%
Str!teg+ o- C#!nging O%er!tions Success-u+
The principal acti,ities of MMC efore the year .333 (ere mining and mineral
e:ploration, engineering, infrastructure and utilities% MMC also has sta+es in manufacturing and
processing as (ell as other in,estments, for e:ample in *ime Dary% 2s (e can oser,e from
its operations, the change from mining to infrastructure, utilities, and logistics did not happen
o,ernight ut started gradually ut pic+ed up after the millennium% During the economic crisis of
199#, MMC e:perienced a sharp drop in its usiness especially in engineering% The economic
crisis is etter +no(n as 1997 Financial Economic Crisis. &n /uly 199#, (ithin days of the Thai
aht de,aluation, the Malaysian ringgit (as Iattac+edI y speculators and the ringgit had lost
634 of its ,alue, falling from ao,e .%63 to under ;%6# on !.0 /anuary 199'" to the dollar% 2s a
result the country5s real annual 7DP plunged #%;4 during 199#?199' and the o,erall economy
(as affected including MMC% To ma+e situation (orse the further drop in metal prices did not
help the situation% 2s the core re,enue of MMC (ere otained from mining this particularly hit
MMC hard that (as mentioned ao,e%
&n the year .331, MMC decided to do a usiness consolidation and di,est its interest in
mining to concentrate on its other usiness acti,ities% &t decided to concentrate and shift its core
usinesses to po(er and infrastructural sectors% &t disposed of its ;9%94 sta+e in 2shton Mining
Ltd% totaling aout 9M;3#%19 million and ought o,er Mala+off Bhd%, an &ndependent Po(er
Producer !&PP"% MMC also ,entured into a conditional share sale agreement (ith *eaport
Terminal !/ohor" *dn% Bhd% to acquire interest in the Port of Tan=ung Pelepas therefore ,enturing
.
into the usiness of logistics and port management% This (as financed through the issuance of
shares to raise the capital to acquire it% &n .33., MMC acquired 19%$4 of &/M and 1334 sta+e
of Gelan, oth construction companies% During that year, MMC managed to successfully id for
the construction of the *M29T pro=ect, a storm drainage and road structure pro=ect in Cuala
Lumpur% This pro=ect enaled it to ma+e good profits and assured its reputation in the
infrastructure field% By .330, it had a recorded net profit of 9M...%' million (hich (as lo(er
than e:pected ecause of its consolidation of Port of Tan=ong Pelepas% &n .33;, MMC
generated 9M1%1 illion of re,enue (ith $64 coming from Mala+off and sa( MMC di,est its
shares in *ime Dary% By .336, MMC reranded itself to concentrate in the field of utilities, port
facilities, and infrastructure ased company% &n .311, MMC celerated its 133 years in
incorporation and ecame a pro=ect deli,ery partner for M9T% &t is reported y .310, mining
represents less than 14 of its re,enue and MMC has managed to change from a mining type
company to a more di,erse usiness holding company (ith its core operations in infrastructure,
utilities, and logistics%
<hy did MMC decided to change its core operationsJ This may e due to the fact that
in the face of d(indling profits and the declining mining industry in Malaysia has forced it to re?
e,aluate it usiness practices% Tin mining in Malaysia (as a declining industry in Malaysia since
the 19'3s and there (as no significant disco,eries of other precious or economical metals in
Malaysia might ha,e forced its hand% Perhaps it felt that it cannot compete (ith other mining
companies in the international field li+e B1P or 9io Tinto% 2nother reason (as that it may (ant
to concentrate on usiness that it is in already, usiness li+e engineering and construction% <ith
its e:perience in high(ay construction, for e:ample Butter(orth ? Culim 1igh(ay Pri,atiAation
Pro=ect, it felt that it had etter chance to profit for the infrastructure industry in Malaysia in the
face of infrastructure gro(th spurred y the go,ernment to counter the 199# financial crisis%
The opportunity to help Malaysia gro( may also e a reason for MMC to concentrate on its
other usiness operations%
Changing a company-s core operations is not something ne( and a fe( international
companies had done so and succeeded from it% Minnesota Mining and Manufacturing !0M" is
one such company that changed from mining conundrum to processing sand paper to eing a
leader in paper products (orld(ide% )o+ia started out as a paper mill company (ith operations
in ruer (or+s and cale (or+s that morphed to selling moile phones and games% Dupont
used to manufacture lac+ gun po(der in 1'3. efore and no( specialiAes in ,arious chemical
products li+e polymer adhesi,es, insecticides, fire e:tinguishers, and (eatheriAation systems%
These companies, li+e MMC, in face of decreasing profits and increased competition decided to
change% The aility to transform and change successfully (ill e important and ho( MMC
Corporation managed to do that successfully (ill e discussed% First of all, MMC had reser,es
of re,enue !retained capital" and managed to raise ne( capital that had enaled it to in,est in
other pro=ects% &n addition, as mentioned efore, MMC already has some e:pertise in
engineering and construction% These t(o factors helped tremendously as (ell as support from
the Malaysian go,ernment% The aility of the company-s leadership and their ,ision to change
and rerand MMC had een successful in helping it transformed% <ith these factors and
ad,antages MMC had managed to successfully change from a mining oriented company to a
more di,erse company (ith strengths in utilities, infrastructure, and port facilities% &n the face of
13
declining profits, stiff competition, and limited opportunities MMC had ta+en the step to
transform and (ith a comination of successful management, good leadership, good
in,estment, and go,ernment encouragement had done so successfully%
CONCLUSION
Change is rarely easy% People resist change and it is quintessential that leaders ha,e to
guide and e on the ground (ith the ran+ and file of the company to help it change% MMC
proaly faced this prolem (hen it announced that it (as changing its core usinesses%
Through a comination of good leadership and the pressure to change it had managed to
transform its operations% 1o(e,er these are not the only causes for it to change% The financial
capaility and usiness acumen (ere the other t(o reasons% Financial capaility y selling off
the operations that it did not (ant to concentrate on and using the capital to in,est in
opportunities that it thin+s (ill ma+e good returns and in,estment% The ,ision and good
forecasting in seiAing this opportunity is another reason for its successful transformation%
2nother reason (hy it managed to transform its operations is go,ernment encouragement in the
form of port facilities and in,estment% <e can oser,e that through these steps MMC had
managed to transform its operations from a mining ased company to a di,erse company (ith
core operations in logistics, utilities, and infrastructure% From the mar+et analysis and
competitor analysis the mar+et (ill remain competiti,e ut analyst remain hopeful and optimistic
aout MMC-s profitaility in the future%
11
&llustration 1
B:hiit 1
1$
B:hiit .
Re-erences
13
&t should e noted ,arious reports and references are done y using MMC Corporation 2nnual
reports otained from the company (esite% Farious annual reports and analyses of
competitors as (ell as MMC Corporation Bhd% are otained from the Financial Times (esite
through Putra Business *chool suscription%
IMMC CorporationI MMC Corportaion Bhd% 2pril .31;% Khttp>HH(((%mmc%com%myL
IFinancial TimesI Financial Times% 2pril .31; Khttp>HH(((%ft%comHhomeHasiaL
IMalaysia Po(er 9eportI .# March .31;, March .31; Khttp>HHstore%usinessmonitor%comH
malaysiapo(erreport%htmlL
I2sia Construction @utloo+ .310I ; 2pril .31;, March .310 K http>HH(((%aecom%comH
deployedfilesH&nternetH7eographiesH2siaH2sia4.3)e(sH2sia4.3Construction
4.3@utloo+M.3104.3M4.3final.4.3M4.3small%pdfL
I.33 Companies to Participate in 2*B2) Logistics and Transport *ho(I Ministry of &nternational
Trade and &n,estment ; 2pril.31;, *eptemer .310 Khttp>HHmyser,ices%miti%go,%my
H(eHguestH.33?companies?to?participate?in?asean?logistics?and?transport?sho(L
Putra Business *chool% @perations Management 7*M 6010 Custom Created Te:too+% .31;
Mc7uigan, /ames 9%, Moyer 9%Charles, and 1arris, Frederic+ 1% deB, Bconomics for Managers
!1.th edition", Canada, .311%
1*