Results

Within  Expectation  -  Reported  3Q14  core  profit  of RM512.8m,  taking  9M14  core  profit  to  RM1.3bn,  whic h  is 74.3% of HLIB’s forecast  and 76.8% of  consensus.

Highlights 

MISC is  in the midst of finalizing the terms   with Petronas on contract extension  (likely 10 years)  for its 5 Puteri class LNG ships.  The  renewed  charter  rates  are  expected  to  be significantly  lower  given  the  current  low  charter  rate environment  (oversupply  situation)  of  US$60k/day  vs.  peak of  US$140k/day.  Currently,  there  are  129  LNG  ships  on order,  with at least 50 ships without charter contracts.

Petroleum charter rate has  improved in 3Q and expected  to rise  further  in  4Q  due  to  seasonally  strong  demand  during winter season in US.  However, the lower bunker cost is not expected to materially benefit  the segment.

Chemical  tanker  charter  rate  remained  bleak   as  China economy  slowed  down.  Despite  the  lower  bunker  price environment,  MISC  is  still  expecting  losses  in  4Q14.   The sales of 4 chemical vessels contributed  to US$4.1m gain.

FPSO  Cendor  will  start  contributing  to  bottomline  in  4Q14, under  finance  lease  accountings,  which  one-off  gain  of RM200+m  will be recognized  at start up point.

MISC’s  66.5%  owned  MMHE  remained  disappointi ng  with low order books of RM1.7bn in  3Q14, due to lack of contract replenishment.

MISC  incurred  ~RM50m  additional  expenses  for  the  listing of  6  matured  assets  (under  VTTI  Energy  Partners  LP)  in NYSE  on  1 st August  2014.  Managem ent  is  reviewing  the expenses  (with  auditors)   to  be  offset  against  the  gains, which is recognized  under  its equity reserves.

Risks

• Continued  overs upply  of  petroleum  and  chemical  ships, depressing  charter rates further.
• Lack of new contracts for MMHE and Offshores.
• Slow recovery  of global  economy.

Rating

HOLD

• Positives  –  Stronger  earnings  post disposal of Liner  Division;  Strong support from  Parent Group,  Petronas.
• Negatives  –  Slowdown  in  global economy growth;  Continued  oversupply  of tankers, pressuring  freight  rates.;  Low order-book  replenishment  by MMHE.

Valuation

• We  have  updated  our  SOP,  post  the  recovery  of  tanker prices  in  recent  months  (our Valuation for  Petroleum  and Chemical  segments  are  based  on  mark et  value  of  the vessels).  Maintained  hold  with  higher  Target  Price  of RM7.00  based on SOP.

Source: Hong Leong Investment Bank Research - 10 Nov 2014