Results

In line - Reported 1Q13 core profit of RM322.8m, achieving 30.2% of HLIB’s FY13 core earnings and 26.4% of consensus.

Deviations

None.

Dividends

None. Management indicated potential resumption of dividend payout for the year. We have only assumed 15 sen net dividend in FY13.

Highlights

LNG shipping charter rate has trended down as more LNG ships being delivered (increase supply) while LNG production projects are facing delays (lower demand). MISC has requested for tenders from shipyards to build 4 LNG ships (option + 4), which is likely to support Petronas’s expansion plan by 2015-16. LNG is MISC’s bread & butter division contributing >85% to MISC’s PBT.

Petroleum tanker rate continued to be volatile; posing highest earnings risk to MISC. Management is cautiously managing the fleets, by increasing exposure to time-charter contract and lower number of tankers. Provided US$7.2m in 1Q13 for 2 old VLCC, which will be disposed by 2Q13.

Despite chemical tanker rate has bottomed, management do not expect the rate to recover within the near term. The division is expected to remain loss-making for the remaining year despite bunker rate has trended down.

Bunker cost, an important operational cost under spot charter, remains high at US$645.8/mt in 1Q13, affecting the profitability of Petroleum and Chemical tanker rate.

2 Companies under offshore divisions had been reclassified as JVs, which will lower Revenue contribution, but not expected to impact MISC’s bottomline.

Risks

• Continued oversupply of petroleum and chemical ships, depressing charter rates further.
• Increased in bunker cost.
• Slow recovery of global economy.

Forecasts

Unchanged. Converted to RM from US$ at RM3.05/US$.

Rating

BUY

• 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

With share price trended down, we have upgraded MISC to BUY with unchanged target price of RM5.20 (SOP), as we belief the downside on earnings is limited, as MISC is actively managing its tanker fleet, and likely to expand its LNG shipping fleet to support Petronas’s expansion plan.

Source: Hong Leong Investment Bank Research - 27 May 2013