Results

Above expectations - Reported 4Q13 core profit of RM620.1m, taking FY13 core profit to RM1.6bn, which is 119.8% of our FY13 expectation and 122.3% of consensus.

Deviations

Stronger than expected contribution from JVs and lower than expected effective tax rate.

Dividends

Proposed 5 sen single tier dividend payment.

Highlights

LNG: MISC is in active negotiation with Petronas on the extension of Puteri Class (expire July 2014). Bidding for new LNG shipping contract for US-Africa. Expect LNG market to be flooded by huge deliveries of LNG tanker in 2014-15. Downward adjustment of US$16m up-front gain on FSU Lekas in 4Q13 due to accounting treatments.

Petroleum: Charter rate seasonally stronger in 4Q13, but showed weakness in 1Q14. MISC will continue to actively manage its fleet to contain continue expected loss in FY14. Impairments of US$3.3m in 4Q13.

Chemical: Charter rate remained stable in 4Q13. MISC expects charter rate to fairly improve in FY14, given the removal of sanction on Iran’s chemical exports. Impairments of US$9.2m in 4Q13.

Offshore: Exceptional disposal gain of US$182m from FPS Gumusut in 4Q13, which was partly offset by US$19.3m impairments on FPSO Brasil. FY14 earnings to improve further from the commencement of FPSO Cendor and full year contribution of FPS Gumusut and Siakap.

Heavy Eng: MMHE continued to struggle replenishing its orderbooks. Recognized VOs from Tapis and deferred tax gain of RM56m in 4Q13.

Tank: Expect continued earnings growth in 2014 with the commencement of 400k cbm tank terminal in Cyprus.

Risks

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

Forecasts

We increased our FY14-15 forecasts by 15-16% on higher JV contributions and introduced FY16 earnings at RM1.9bn.

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

In view of strong share price performance, we downgraded MISC to Hold despite higher target price of RM6.28 (from RM6.05) which reflects the stronger than expected JV contributions.

Source: Hong Leong Investment Bank Research - 14 Feb 2014