News

• MISC has proposed to dispose its 45% stake in Centralised Terminals Sdn Bhd to Dialog (Not Rated) for consideration of RM193m.

• The proceeds consist of RM137m cash for ordinary shares and redeemable shares in the JV and repayment of shareholder advances (from MISC) and accrued interest amounting to RM56m by Dialog.

• Completion of the deal is expected by end Oct 2017.

Comments

• Slight positive to the group as the disposal value is higher than our assumed tank terminal value of RM100m in our SoP valuation.

• However, the impact would be minimal in terms of earnings loss as Tanjung Langsat Tank Terminal (owned by CTSB) only has a capacity of 640,000mt, relatively immaterial as compared to VTTI (MISC previously owned tank terminal JV with a capacity of 8,000,000mt).

• Based on our estimation, PAT impact of the disposed tank terminal would be circa RM20m p.a., 1% of both FY18 and FY19 earnings forecast.

• The disposal will allow the group to free up its balance sheet to focus on its core businesses.

Outlook:

• Despite the positive impact of the disposal, we maintain our slightly negative view on the company.

• LNG: 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: 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 VO claim.

Risks

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

• Increase in bunker cost.

Forecasts

• Both FY18/19 core earnings forecast is cut by 1% to account for the loss in tank terminal contribution.

Rating

HOLD ( ↔ )

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

Valuation

Our SoP-driven TP is raised slightly to RM7.54 from RM7.52 as we impute the tank terminal disposal consideration into our valuation.

Source: Hong Leong Investment Bank Research - 26 Sept 2017