News

MISC’s major shareholder Petronas has failed in its bid to privatize the energy shipping company at revised offer price of RM5.50/share.

At closing date of 19 April 2013, Petronas has only received 23.4% of the outstanding shares (including EPF’s 9.5%), and adding its existing 62.7%, only managed to control a total of 86.1%. The amount is 3.9% short of 90% shareholdings level before it become unconditional.

Petronas will return all MISC shares that had been transferred into its central depository system account to the respective shareholders within 14 days.

Comments

We expect selling pressures on MISC post Petronas’ unsuccessful bid to privatize at RM5.50/share. Share price had already fallen to RM5.30 (from RM5.48) level last Friday. However, we do not expect share price to fall back to below RM4.50 level (prior to privatization offer of RM5.30/share).

Going forward, we expect MISC earnings continued to be dragged down by Petroleum and Chemical tanker divisions, as both the markets are facing oversupply situations, with subdued demand growth.

The recent bunker price declined to US$630/tonne from high of US$780/tonne would provide comfort to MISC earnings, as the charter rate continued to stay at low level. Bunker cost contributed 22% to MISC’s operating cost.

Risks

• Continued oversupply of petroleum and chemical ships, depressing charter rates further.
• High bunker cost.
• Slow recovery of global economy.
• Development of alternative energies.

Forecasts

Following MISC’s new reporting currency, we have revised our forecast into US$ (previously RM) and tweaked lower FY13-14 earnings by 1.8% and 10% respectively. We introduce FY15 earnings at US$404.9m (+10% yoy).

Rating

Hold

• Positives –
  • Potential synergy from VTTI.
  • Stronger earnings post disposal of Liner Division.
  • Strong support from parent group, Petronas.
• Negatives –
  • Slow down in global economy growth.
  • Continued oversupply of tankers, pressuring freight rates.
  • High bunker cost.

Valuation

• We have cut our target price to RM5.20 based on SOP to account for the much improved market sentiment since the privatization offer.

Source: Hong Leong Investment Bank Research - 22 Apr 2013