- We maintain our HOLD rating on MISC with an unchanged fair value of RM8.30/share, based on our sum-of-parts valuation.

- Stripping off the one-off adjustment of ~RM40mil for the tax impact from the listing of its tank terminal assets, VTTI, MISC’s 1QFY15 core net profit of RM526mil came in within expectations at 25% of our estimates and 24% of consensus. No dividends were declared for the quarter as expected.

- The group registered a core net profit growth of 8% YoY. This came on the back of stronger earnings from its petroleum shipping segment (+66%) due to higher freight rates, and the offshore segment (+60%) contributed by FPSO Cendor that was delivered in September 2014. Its chemical shipping segment’s losses were also reduced by 40% YoY.

- However, this was partially offset by lower earnings from its LNG segment (-22% YoY) due to the expiry of two LNG vessels, Puteri Intan and Puteri Delima, as well as dry-docking of some of its existing vessels.

- The LNG segment’s earnings will remain weak in the coming quarters as the third Puteri class LNG vessel will come off charter in 3QFY15. Renewal of the Puteri class vessels with Petronas will also be at lower rates, given that current spot rates remain under pressure due to the rising fleet supply globally. Puteri Intan and Puteri Delima will be undergoing refurbishments for ~100 days before resuming their charters with Petronas.

- MISC is confident of the petroleum shipping rates remaining strong in the coming quarters after seeing a protracted period of weakness over the last six years. We understand that delivery of newbuilds has peaked last year, while demand for crude shipping has been increasing due to the low oil price level.

- We expect the outlook on the heavy engineering segment to remain gloomy as orderbook replenishment would continue to be a challenge in the near term as the impact of slower project rollouts and delays in the award of new tenders will be more significant for domestic-centric upstream players. This is amid Petronas’ recent announcement of a 15%-20% reduction in capex.

- The stock is now trading at FY15F PE of 20x.

Source: AmeSecurities Research - 5 May 2015