Results

• Within Expectations - Reported 3Q15 core profit at RM696.7m and 9M15 at RM1,951.5m, achieving 76.1% of HLIB’s FY15 earnings and 73.0% of consensus.

Deviations

• None.

Dividends

• None.

Highlights

• LNG: Reported weakest quarterly core PBT at US$85.9m due to off-chartered of 5 LNG tankers and cold layoff of 2 LNG tankers. Recognized US$61.5m impairment charges on 3 Puteri Class (off-chartered). Expect improvements in upcoming quarters, on Puteri class contracts extension and contribution of new Petronas LNG contracts by 2016-2017.

• Petroleum: Defying the weaker market trend in 3Q15, MISC was able to maintain its high charter rate with highest quarterly core PBT US$40m since 2009 (before the slump in charter rate). MISC had entered into US$500m contract for 8 new Petroleum tankers, delivery by 2016-2018, to leverage on the expected sustainable high charter rate.

• Chemical: Charter rates remained weak in 2Q15, due to slowdown in global economic activities (especially China). With ongoing restructuring effort and low bunker cost, MISC managed to return to black with PBT of US$1.9m.

• Offshores: Net earnings contribution remained stable qoq in 3Q15 despite lower revenue due to finance lease accounting. Currently, there are limited new projects available in the market given the low oil price environment.

• 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: Expected to complete VTTI disposal exercise for US$830m by end 2015.

• Others: On tax exemption ending Dec 2015, MISC is confident of further extension, with new proposals being submitted to government.

Risks

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

Forecasts

• We have fine-tuned our forecast and increased FY15-17 earnings forecasts by 0.7%/8.8%/15.4%, 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

• Maintained BUY with higher target price of RM10.06 (from RM9.00) post earnings adjustments. We expect MISC to continue its strong earnings leveraging on the current high Petroleum charter rate as well as the strengthened US$.

Source: Hong Leong Investment Bank Research - 5 Nov 2015