Results

• Above expectations – 3Q17 core net profit came in at RM462.3m, bringing 9M17 core profits to RM1,480.7m, above HLIB forecast at 85.4% and within consensus at 69%.

Deviations

• Due to stronger than expected LNG earnings.

Dividends

• 7sen/share of tax-exempt dividend was declared, bringing cumulative DPS YTD to 21sen/share, 70% of full year forecast.

Highlights

• YoY: Core PATAMI surged 40% to RM462.3m due to; (i) contribution of new LNG vessels; and (ii) lower LNG operating cost as Tenaga Lima depreciation is no longer expensed as it is currently classified under asset held for sale. These were being partially offset by weaker petroleum division. We have excluded RM218.2m as E.I items from offshore segments and others.

• QoQ: Core profit was 8.9% weaker due to weaker petroleum division dragged by weaker rates and higher bunker costs.

• 9M17: Net profit strengthened 13.9% driven by; (i) commencement of charter of new LNG vessels; (ii) lower LNG depreciation cost; and (iii) full consolidation of GKL earnings.

• Outlook:

• LNG: 3 RD LNG vessel Seri C class vessel has been delivered on 27 th July 2017, which would partially make up for revenue loss upon expiry of old Puteri class vessels in 2016.

• Tanker: Demand for Petroleum tanker remains muted due to OPEC production cuts. Earnings for the division remain challenging due to expectation of stronger bunker costs.

• Offshore & Heavy Engineering: FSO Benchamas conversion is still progressing well while GKL is expected to anchor Offshore division in 2017. On the arbitration with Sabah Shell, GKL has gotten a favorable decision from court and entitled for VOs from 2014 to early 2017.

Risks

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

• Increase in bunker cost.

• Slow recovery of global economy.

Forecasts

• Upgrade forecast of FY17E/18F/19F by 18.3/13.5/12.5% to account for higher LNG margins.

12.5%

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 SoP-driven TP increased to RM7.64 from RM7.52.

Source: Hong Leong Investment Bank Research - 06 Nov 2017