News

MISC has entered into an agreement (SPA) to sell its 100% stake in MILS (MISC Integrated Logistics) for a cash consideration of RM250m as compared to its unaudited net assets of RM246.5m as at 31 December 2013 (1.01x P/B).

MILS’s business include provision of project logistics and supply chain management, which includes freight management, forwarding, transportation, warehousing, and other value-added services. Comments

We are positive on MILS disposal, given MISC would be able to better use its resources and concentrate on its core business segment i.e. provide shipping services for LNG, petroleum, chemical and offshore.

MILS, as a logistic company, used to play an important role to support MISC’s container business. Post MISC exiting the container shipping (liner) business in 1H12, MILS has become a non-core business for MISC.

Risks

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

Forecasts

Unchanged, as earnings contributions from MILS are relatively immaterial towards the MISC Group earnings while the selling price is almost equivalent to book.

Rating

SELL

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

Given the offered price of RM250m is higher than our valuation of RM68m. We have raised our target price to RM6.32 (from RM6.28). However, as MISC share price has overshoot our valuation, we advise investors to take profit and downgrade the stock from Hold to Sell.

Source: Hong Leong Investment Bank Research - 24 Mar 2014