Results

• In line – 4Q17 core net profit came in at RM600.6m, bringing FY17 core profits to RM2,081.3m, within both HLIB and consensus forecasts at 101.5% and 95.0% respectively.

Deviations

• None.

Dividends

• 9sen/share of tax-exempt dividend was declared, bringing cumulative DPS YTD to 30sen/share, 100% of full year forecast.

Highlights

• YoY: Core PATAMI remained flattish at RM600.6m, The higher contribution from; (i) LNG segment on commencement of 2 Seri C vessels; and (ii) Offshore segment due to recognition of FSO Benchamas construction revenue, and being offset by weaker petroleum division due to lower earning days and freight rates.
• QoQ: Core profit increased by 29.9% due to seasonally stronger petroleum division performance in 4Q, driven by increased fleet size and improved freight rates and higher contribution from Offshore segment.
• FY17: Net profit strengthened 9.6% driven by; (i) commencement of charter of new LNG vessels (how many); (ii) lower LNG depreciation cost; and (iii) full consolidation of GKL earnings.
• Outlook:
• LNG: The pickup of short term charter rate is unsustainable and expected to come down after winter season by 1Q18 due to continue oversupply in fleet tonnage. You need to address the concern on the sudden drop in LNG PBT in 4Q.
• Tanker: Prospect for Petroleum tanker has improved due to fewer newbuilds and more demolition of tankers that is driven by subdued market conditions, improved scrap prices and environmental regulations.
• Offshore & Heavy Engineering: Deep water opportunities in the Atlantic Basin remain the focus for growth of Offshore business. Order book as of December 2017 for Heavy Engineering segment stands at c.RM1.3bn.

Risks

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

Forecasts

• Maintained.

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 SoP-driven TP slightly decreased to RM7.61 (from RM7.64) after adjusted for latest TP for MMHE (HOLD: TP: RM0.85).

Source: Hong Leong Investment Bank Research - 14 Feb 2018