Highlights/ Comments

• MISC had announced yesterday that it had entered into an agreement to acquire entire equity stake in Petronas Maritime Services Sdn Bhd (PMSSB) from PETRONAS for a total cash consideration of RM54m which will be completed on 7th July 2015.

• This acquisition will be financed through internally generated funds and the RM54m cash consideration represents only 1.3% of 1Q15 cash balance of RM4bn. FY May 15 Net Profit Net Assets RM ('m) PMSSB 14.1 32.9 SUPSB 5.9 21.2

• Principal activities of PMSSB are the provision of maritime services and consultancy and maritime audit. Further, PMSSB wholly-owned subsidiary, Sungai Udang Port Sdn Bhd (SUPSB) principal activities are the operation and management of Sungai Udang Port.

• The acquisition is valued at 4x PE of FY05/15, relatively cheaper than MISC’s 19x PE of FY12/15.

• The acquisition will enable MISC to offer full range of maritime services to PETRONAS Group and leverage on that to become PETONAS Group Center of Maritime Excellence.

• We are neutral on this acquisition as PMSSB Net profit for 2015 only represents 0.7% of MISC forecasted core net profit in 2015. Hence, we do not expect the acquisition to have material impact to MISC bottom line.

Risks

• Oversupply of LNG, petroleum and chemical ships, depressing charter rates.
• Increased in bunker cost.
• Slow recovery of global economy.

Forecasts

• Unchanged

Rating

• (SELL ) Positives
• Strong rebound in Petroleum tanker charter rate.
• Strong support from Parent Group, Petronas. Negatives
• Continued oversupply of LNG and chemical tanker.
• Low order-book replenishment by MMHE.

Valuation

• Maintain SELL recommendation with unchanged target price of RM8.08 based on SOP.

Source: Hong Leong Investment Bank Research - 16 Jun 2015