Investment Highlights

• We maintain our HOLD recommendation on MISC with unchanged forecasts and fair value of RM7.35/share, which is at a 20% discount to our sum-of-parts valuation of RM9.19/share. This implies a FY17F EV/EBITDA of 9x, 1SD below its 2-year average of 10x.

• Given the group’s huge earnings and asset base, we do not expect any significant impact to MISC’s FY17F-FY19F EPS from the sale of an effective 36% equity stake in its Tanjung Langsat tank terminals in Johor to Dialog Group.

• The group has entered into a share purchase agreement to dispose of its entire 45% equity stake in Centralised Terminals S/B (CTSB) for RM137mil cash to Dialog, which will also assume MISC’s RM56mil shareholder loan. The sale is expected to be completed within a month.

• CTSB has an 80% equity stake in a total storage capacity of 647,000 cubic metres (directly owned by Langsat Terminal (LGT) 1 and 2) while Trafigura the remaining 20%. CTSB also owns a 100% equity interest in currently dormant LGT 3.

• Recall that Dialog did not proceed with the expansion of 380,000 cubic metres under LGT 3 back in 2012 as the depth of the port was not dredged as agreed with the Johor port authorities.

• Operational since 2009, the existing tanks under LGT 1 and 2 are currently fully utilised on term contracts, and strategically located near the busiest international shipping lane in Singapore, between Middle East and Asia.

• Both terminals are part of the storage and trading hub for oil and gas in Johor and are also in the vicinity of one of the largest refining and petrochemicals, trading and storage centres in Asia. The LGT 1 and 2 terminals have been included by oil agency Platts for its FOB Straits oil price assessment process.

• The proposed disposal is in line with MISC’s initiative to divest MISC’s non-core tank terminal business, unlock the value of MISC’s investment in CTSB and to focus on its core business in the energy-related maritime solutions and services.

• We believe the stock currently trades at a fair FY17F EV/EBITDA of 9x, slightly below its 2-year average of 10x.

Source: AmInvest Research - 26 Sept 2017