Results

• Above Expectations - Reported 4Q15 core profit at RM855.3m and FY15 at RM2,881.6m, achieving 111.6% of HLIB’s FY15 earnings and 114.8% of consensus.

Deviations

• Stronger than expected contribution from Petroleum division on higher charter rates and RM depreciation.

Dividends

• Declared an interim net dividend of 12.5sen and another final net dividend of 10.0sen. Total dividend for FY15 at 30.0sen (above HLIB’s expectation of 15.0sen).

Highlights

• LNG: Reported US$56m one-off earnings from early termination of 2 LNG charters in 4Q15. Excluding the contribution, Core PBT was US$375m in FY15 (-22.3% yoy), due to end charters of 3 Puteri class LNGs and off charter for another 2 LNGs during the year. Expect stronger earnings in FY16 from the resumption of the Puteri class LNGs (contract extension) and contribution from new LNG charters (novated from Petronas).

• Petroleum: Stronger core PBT of US$135.8m in FY15 (vs. losses of US$23.7m in FY14), leveraged on the rebound of charter rates since 4Q14. Earnings expected to be sustainable in FY16 as more contracts being renewed at higher charter rate during the year.

• Chemical: Outlook for FY16 remains mixed with slowdown in global economic activities (especially China) offset by sanction lift on Iran (more cargoes available). Core PLT was US$7.4m in FY15 vs. US$38.4m in FY14. Total impairment charge was US$50m in FY15 vs. US$30m in FY14.

• Offshores: Recognized additional US$60m revenue from an asset under construction under finance lease accounting in 4Q15. However, there will be no profit recognition until the commencement of the project. Core PBT was relatively flat yoy at US170m in FY15.

• MMHE: Remained weak on diminishing orderbooks, currently at RM1.1bn and tenderbook at RM8.4bn.

• Terminal: Completed VTTI disposal exercise for US$830m by in 4Q15 (gain US$16.7m), which was used to reduce debts. Core PBT was US$24m (-20.5% yoy) in FY15.

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 FY16 and FY17 earnings forecasts by 3.4% and 1.3%, on improved charter rates. Introduced FY18 earnings at RM3.2bn.

Rating

BUY

Positives

• 1) Strong rebound in Petroleum tanker charter rate; and 2) Strong support from Parent Group, Petronas.

Negatives

• 1) Continued oversupply of LNG and chemical tanker; and 2) Low order-book replenishment by MMHE.

Valuation

• Post minor adjustments, we tweaked our TP to RM10.00 (from RM10.06). We expect MISC to continue its strong earnings leveraging on the current high Petroleum charter rate as well as the strength of US$.

Source: Hong Leong Investment Bank Research - 10 Feb 2016