Highlights/ Comments

• MISC had announced on 21st August 2015, that they had entered into an agreement to dispose its entire 50% of the issues Share Capital of VTTI (Agreement) with VIP Terminals Finance B.V (Buyer) for a cash consideration of US$830m (RM3.3bn).

• VVTI is a company incorporated in Netherlands, which core business is to provide oil product storage terminals and refineries. The company has presence in 11 countries across 5 continents.

• In 2010, MISC final cost of investment for the paid up capital of VTTI was US$882.1. Based on the carrying value of VTTI as at 30 June 2015, MISC is expected to gain US$9.1m from this disposal. We do not expect any material impact on MISC 2015 core earnings the deal is slated for completion by February 2016.

• MISC is expected to utilize the proceeds to partially repay borrowings, fund capital expenditure as well as funding for future opportunistic acquisitions or new investments. We do not discount potential higher dividend payout post completion of the disposal exercise.

• Tank Terminals contributed US$30.7m (RM100.9m) of FY14 which represent around 4%. The contribution is expected to be become less signi ficant to the group given the turnaround of Petroleum tanker division (from loss making in FY14).

• We are positive on the disposal, which will improve MISC cash coffer in the current plunge in crude oil prices. Tank terminal business seems to have been affected by the current lower oil prices trend. MISC will continue to focus on its core business (energy and petroleum related shipping).

• Note that MISC will need to fund the construction of 5 new LNG tankers (take over from Petronas), which is estimated to cost US$1.1bn. The tankers are expected to be delivered from end 2016 to 2017.

Risks

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

Forecasts

• Forecast unchanged pending completion of disposal.

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

• Maintain BUY recommendation with Target price of RM9.00 based on SOP.

Source: Hong Leong Investment Bank Research - 24 Aug 2015