News

• MISC has entered into an agreement (SPA) to sell its 100% stake in MILS (MISC Integrated Logistics) for a cash consideration of RM257.2m (plus another RM66.8m settlement for inter-co loan and RM34.0m payable to MISC) as compared to its audited net asset of RM255.5m as at 31 December 2015 (1.01x P/B).

• MILS is involved in provision of project logistics and supply chain management, which includes freight management, forwarding, transportation, warehousing, and other valueadded services. Financial Impacts

• Contributions from MILS over the last two years were relatively immaterial to the whole group:
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Comments

• We are positive on MILS disposal, given MISC would be able to better use its resources and concentrate on its core business segment i.e. providing shipping services for LNG, petroleum, chemical and offshore.

• MILS, as a logistic company, used to play an important role to support MISC’s container business. Post MISC exiting the container shipping (liner) business in 1H12, MILS had become a non-core business for MISC.

Risks

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

Forecasts

• Unchanged, as earnings contributions from MILS are relatively immaterial towards the MISC Group earnings.

Rating

BUY

Positives

• 1) Sustaining 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

• We maintain our TP at RM9.50 based on SOP. We maintain our positive outlook on MISC’s new LNGs and sustainable Petroleum segment. We believe share price drop of 13.1% yesterday was overly sold on the negative expectation on LNG earnings in upcoming 2Q16. We expect earnings recovery in 2H16 with full consolidation of Gumusut Kakap FPS, 6 Paramount Aframaxes and new contributions of 2 new LNGs. Meanwhile, the recommencement of 2 Yemen LNGs (deferred 1 year since 1Q16) by 1Q17 will further boost MISC earnings.

Source: Hong Leong Investment Bank Research - 10 May 2016