Results

• Above Expectations - Reported 2Q15 core profit at RM739.1m and 1H15 at RM1, 254.8m, achieving 63.7% of HLIB’s FY15 earnings and 58.1% of consensus.

Deviations

• Stronger than expected charter rates for Petroleum Tanker as well as strengthened US$ against MYR.

Dividends

• Proposed first interim net dividend of 7.5 sen/share.

Highlights

• LNG: Recognized lay-up charter rate of circa RM15m for Tenaga 2 and 3 for Jan-Jun’15 in 2Q15, after finalizing negotiation with client. Both LNG ships are expected to be disposed by year end. Lower earnings yoy due to 2 Puteri Class LNG ships currently under refurbishments. 2 other LNG ships are exposed to the weak LNG market condition.

• Petroleum: Charter rates remained strong in 2Q15 (despite weak seasonality) and above market expectations. MISC expects to leverage on the continued strong demand for Petroleum vessels. 2 VLCCs and 4 Suezmax will expire in 2015 and another 6 VLCCs will expire in 2016, and assume higher charter rates for the following spot/charter contracts. 40% of the Aframax fleet is leveraged to the current high spot rates.

• Chemical: Charter rates remained weak in 2Q15, due to slowdown in global economic activities (especially China). With smaller fleet size and lower bunker costs, MISC was able to further cut the losses to only US$1.4m in 2Q15.

• Offshores: Recognized one-off earnings of vessel refurbishments (from Defense Ministry) amounting to US$3- 4m in 2Q15. Expect earnings for the segment to be relatively stable at US$47m per quarter given no further project commencement in the near term.

• MMHE: Remained weak on diminishing orderbooks, currently at RM1bn and tenderbook at RM7bn. Works for Malikai and SK316 are reaching tail-end of the contracts.

• Terminal: Recognized one-off tax adjustment of US$11.9m after official audits on VTTI accounts in 1Q15. Expect earnings to remain stable at US$6.3m per quarter.

Risks

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

Forecasts

• Increase FY15-17 earnings forecasts by 28-30%, after incorporating higher charter rates for Petroleum and stronger US$.

Rating

BUY ( )

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

• Upgrade to BUY at RM9.00 (from RM8.08) post earnings revision. Despite the weakened LNG charter market, we expect MISC to leverage on the continued high Petroleum charter rate as well as the strengthened US$.

Source: Hong Leong Investment Bank Research - 5 Aug 2015