Results

• Within expectation - Reported 1Q17 core profit of RM510.9m which came in at 29.3% of HLIB’s and 24.5% of consensus forecast.

Deviations

• None.

Dividends

• 7sen/share of tax exempt dividend was declared, accounting for 23% of our full year forecast (30sen/share).

Highlights

• YoY: Core PATAMI for the group inched up by 6% in 1Q17 due to stronger LNG contribution upon commencement of charter from Seri Camelia and Seri Cenderawasih LNG in 4Q16 and 1Q17 respectively. This was being partially offset by weaker Petroleum division earnings due to lower earning days and higher bunker cost post increase in oil prices YoY.

• QoQ: Core profit weakened by 14.8% dragged higher losses from Heavy Engineering due to lack of work orders. These were partially offset by stronger LNG contribution on full quarter contribution from 2 new vessels.

• Outlook:

• LNG: The group is expecting 1 LNG vessels to be delivered in 2H17. We expect a flattish performance for LNG division in 2017 as new charters replace the loss of income from more profitable expired contracts of Puteri class vessels. We expect vessel oversupply to persist globally with ongoing new deliveries in 2017-19. Current total orderbook for LNG vessels stands at 27% of global fleet.

• Tanker: 2017 is expected to be a rather flattish year for tanker rates. Demand outlook has improved slightly post OPEC cut as more US export into Asia has increased overall tonne-mile demand. Nevertheless, high fleet growth will continue to put pressure on overall tanker rates.

• Offshore & Heavy Engineering: Heavy Engineering will continue to be marginally profitable while Offshore will improve slightly in 2017 due to full year recognition of GKL and improvement in charter rate of GKL post successful variation order claim.

Risks

• Oversupply of LNG, petroleum and chemical ships, depressing charter rates.

• Increase in bunker cost.

• Slow recovery of global economy.

Forecasts

• Maintain.

Rating

HOLD ( ↔ )

• Earnings headwinds persist with Petroleum tanker rates expected to remain depressed this year while its LNG division would face long term headwinds as its long term charters come to expiry while new LNG contracts are significantly less profitable.

Valuation

• Maintain HOLD with unchanged SoP-driven TP of RM7.52

Source: Hong Leong Investment Bank Research - 5 May 2017