MISC’s FY18 results with core profit of RM1.37bn (-35% YoY) was within expectations Fourth interim dividend of 9.0 sen/share (ex-date: 6 Mar, payment date: 8 Mar), as expected, was declared (vs 9 sen in 4Q17), bringing its YTD DPS to 30 sen. While LNG segment is expected to stay resilient on firm long term charters, we expect petroleum segment to improve in FY19 on higher demolition activities but upside could be capped by higher new build deliveries. No changes to our estimates and maintain our HOLD rating on the stock with higher SOP-driven TP of RM6.59.

Within expectations. At 103%/98% of our/consensus full-year estimates, FY18 core net profit of RM1.37bn was within expectations. Fourth interim dividend of 9.0 sen/share (ex-date: 6 Mar, payment date: 8 Mar), as expected, was declared (vs 9 sen in 4Q17), bringing its YTD DPS to 30 sen.

QoQ: MISC booked in core net profit (CNP) of RM419.4m after stripping off: RM171.1m impairment & write offs on vessels & receivables, RM29.6m gain on business acquisition, RM9.2m vessel disposal and RM70m one-offs in JVs. This marked a 33% QoQ improvement due to better contribution from: (i) petroleum segment as a result of improved charter rates, and (ii) stronger JVs (FPSO Ruby II contract extension). This masked weaker LNG segment.

YoY: Core earnings dropped by 29% from RM587.2m in 4Q17, no thanks to weaker heavy engineering segment (lack of variation orders & marine repair) and offshore segment (absence of Benchamas construction profit). This was further bogged down by higher finance cost (+60%) and tax expenses.

YTD: FY18 core earnings also plunged by 35% from RM2.1bn mainly bogged down by lower contribution from all four core segments.

Outlook. LNG spot rates have moderated after the strong surge during the winter season in 4Q18. For petroleum segment, we expect rates to recover in 2019 helped by higher demolition activities. That said, upside could be capped by higher new builds and deliveries amidst lingering uncertainties from trade war tension between US and China. Current portfolio mix of 60:40 term to spot will allow MISC to benefit the recovery of tanker rates. On the other hand, its heavy engineering division’s tenderbook still remains strong at RM5.5bn including overseas offshore fabrication work for renewable projects. The marine repair segment will not see further deferment by ship owners for dry-docking in 2019 in view of the forthcoming implementation of IMO in 2020. While offshore segment remains the growth focus, management does not deny the potential bidding of project Mero 2 in Brazil and FPSO Limbayong in Sabah, as reported by Upstream.

Forecast. Unchanged.

Maintain HOLD, TP: RM6.59. Our SOP-driven TP is increased to RM6.59 (from RM6.40) after adjusting our net debt value for FY18 and MMHE’s TP to RM0.61/share from RM0.55/share previously. Despite a stronger earnings outlook in FY19, we are maintaining our DPS forecast of 30 sen (flat YoY) as the implied dividend payout of 83% is still higher than its historical three-year average payout of 79%.

Source: Hong Leong Investment Bank Research - 25 Feb 2019