- We reaffirm our BUY recommendation on MISC with an unchanged sum-of-parts based fair value of RM9.40/share, following a meet-and-greet meeting with the top management yesterday.

- Management indicates that it will remain focused on growing its core businesses, i.e. petroleum shipping, LNG shipping, FPSO and heavy engineering segments.

- We remain positive as the charter rates for petroleum tankers continue to hold up. This is because the rate of supply of new tankers has peaked out in 2014, with no signs of heavy ordering currently. Additionally, we believe demand would also remain strong on the back of continued production by the OPEC and the US, and new oil supply entering the market from Russia and Iran. Management expects freight rates to be sustainable at the current levels in the coming 2 years.

- MISC would also be increasingly looking at locking in long term charters for its petroleum tankers, to better manage its fleet and provide more earnings visibility for the segment. We understand the DP2 shuttle that was taken delivery in March, coupled with another in 3QFY15, will be chartered out on a long-term basis (15-20 years) to Statoil.

- Given the current low crude oil price environment, the group believes that asset disposals by ailing oil and gas companies would present an opportunity for MISC to acquire FPSO vessels at a discounted price and expand its offshore fleet. The group has currently assumed a base case of crude oil prices remaining depressed through 2016 and 2017.

- The LNG segment is expected to remain slow in the coming years as the supply of vessels continue to outstrip demand. Currently, ~50-60 vessels remain uncontracted. Nevertheless, the earnings of the segment would be sustained by the five newbuild vessels chartered to Petronas starting next year.

- MMHE’s order book stood at RM1bil as at end-June 2015, and it has secured ~RM400mil worth of contracts to date. It currently has a tender book of RM7bil comprising domestic and overseas tenders. 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 and potential deferment of major projects just as the Kasawari and Sepat platforms.

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

Source: AmeSecurities Research - 23 Sep 2015