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

- Following our meeting with management, we gathered that the strength of the petroleum segment remains intact. The management expects the rates to continue holding up throughout the year, with 4Q being seasonally the strongest, as demand for the petroleum tankers are expected to grow by 3%-4% on the back of a continued production by the OPEC, while supply is only expected to grow marginally at 0.4%. We understand that the segment will most likely return to the black if rates remain at the current levels.

- The DP2 shuttle that was taken delivery in March, coupled with another in 3QFY15, will be chartered out on a longterm basis (15-20 years) to Statoil. The group indicates that it will increasingly look to securing more long-term charters of similar durations for its niche petroleum tankers to provide more certainty to its earnings going forward.

- The five newbuild LNG carriers – which will be on time charter with Petronas – are on track to be delivered starting from 2HFY16. We note that Petronas could potentially exercise the option (which will expire by yearend) of securing three more vessels from MISC. The charter rates have been locked in upon the securing of the contracts.

- The five existing Puteri Class carriers – which charters had been extended by 10 years by Petronas – are on track to be delivered upon the refurbishment of these vessels, which takes up to 3-6 months. There are currently two vessels undergoing refurbishments at its subsidiary Malaysia Marine and Heavy Engineering’s (MMHE) yard, while another will come off charter in 3QFY15.

- MMHE’s order book stood at RM1.2bil as at end-March 2015, and it has secured RM393mil worth of contracts to date. It currently has a tender book of RM7.2bil comprising domestic and overseas tenders including onshore fabrication and offshore projects in the Middle East, Africa, and Canada. However, we expect the outlook for the division to remain challenging in the near term, as order book replenishment will remain a concern due to capex cuts by the oil majors.

- Although the recent RM54mil acquisition of Petronas Maritime Services Sdn Bhd RM54mil was at a relatively cheap valuation at 3.8x compared with MISC’s 17x for FY15F, the contribution to the group is nevertheless small at only 1% of total net profits.

Source: AmeSecurities Research - 30 Jun 2015