· We reiterate our BUY recommendation on MISC with an unchanged fair value of RM9.40/share, based on our sumof- parts valuation.

· MISC announced that it had entered into an agreement to dispose its 50% stake in VTTI B.V. to its JV partner Vitol Investment Partnership Ltd for a cash consideration of USD830mil.

· Our FY16F-17F earnings are reduced by 3%-4% after taking out the share of profits from VTTI. The estimated gain from the disposal is approximately USD9.1mil, based on the carrying value of MISC’s investment in VTTI as at 30 June 2015.

· However, our fair value is unchanged as our current estimate of VTTI at USD839mil in our SOP is largely in line with the disposal consideration. Based on our estimates, the divestment values VTTI at a forward PE of 29x, above MISC’s valuation of 15x.

· The proposed disposal is expected to be completed by February 2016. MISC intends to utilise the proceeds to pare down its borrowings, fund capex and future acquisitions and investments when they arise.

· We are positive on this, as this would allow MISC to monetise its investment in the tank terminal business to focus on its core business in energy shipping. This would allow the group to capitalise on future opportunities when the shipping industry enters a new cycle.

· VTTI’s principal activities involve operating and managing a network of oil product storage terminals and refineries in 11 countries, including the Amsterdam- Rotterdam-Antwerp region, United Arab Emirates, Latvia, Malaysia and the US.

· Elsewhere, the management expects the recovering petroleum shipping segment to continue to underpin the strong performance of the group, as the rates continue to hold up in the near term, with 4Q being seasonally the strongest.

· This is because demand for the petroleum tankers are expected to continue to grow on the back of continued production by the OPEC and the US, and new oil supply entering the market from Russia and Iran. Simultaneously, supply growth of petroleum vessels remains marginal, as heavy delivery is only expected two years from now.

· The stock is now trading at its historical 3-year mean of 15x on its FY15F earnings.

Source: AmeSecurities Research - 24 Aug 2015