Selling off containers. After recording massive provisions totaling USD546.3m in the past two quarters on exiting its liner business, we estimate that MISC may see a write-back totaling at least USD174m, which is half of what it had earlier provided for. This amount was raised from the sale of 10 container vessels, with the remaining six older vessels likely to be scrapped. The buyers who have snapped up these liners at massive discounts of about 50% over last year's prices are understood to be Costamare and Capital Ship Management of Greece, and Sea Consortium. At the company's last analyst briefing, management guided that the last of the operation losses for the next one or two quarters would range from USD50m-USD60m. The group's exit from the liner business will drive profits going forward as this segment has been racking up losses totaling USD1.04bn (operation losses before tax) over the past 20 quarters. This works out to an annual average of USD208m. The book value boost from the writeback will add 12 sen to MISC's book value per share, which is slightly positive for the stock as its valuation has hit rock-bottom.

Bunker flat y-o-y, but rates are better. The 2Q2CY2012 bunker prices have been flat y-o-y but what is encouraging is that VLCC rates have surged by 144% to USD29,588/day over the same period (see tables overleaf). The substantially higher VLCC rates will very likely be able to offset the drop in Aframax rates (down by 12-15% y-o-y), to which MISC's exposure represents 60% of its petroleum tonnage capacity. Moving forward, MISC is expanding its fleet by adding more VLCCs (four in FY13) and Suezmaxes (four in FY12) and shuttle tankers (two in FY12), for which the rates are likely to be higher. Coupled with the drop in bunker prices, this should be positive in terms of minimizing the losses from MISC's Aframaxes, and hence boost earnings in the upcoming quarters. Nonetheless, we reiterate that the overall dirty tanker market is bearish owing to a supply glut that is likely to persist up to 2014, as the capacity growth of 7% over the next two years outpaces the slowdown in oil demand.

Source: OSK