Journey to Wealth
MISC Bhd - Fire on Bunga Alpinia tanker
News Yesterday, MISC announced that a fire broke out on board its 38,000 DWT chemical/palm oil tanker, Bunga Alpinia while it was loading cargo at 2.30am in the morning.
The incident took place when the vessel was alongside Petronas' Chemicals Methanol berth.
According to management's preliminary assessment, the impact to MISC could be minimal as the tanker is just one of the 29 owned and/or operated by the Chemical division.
Comments We are negative on the news as this implies a potential interruption of business at its Chemical division, which is already facing a weak earnings outlook.
This in turn could mean potential weakness in 3QFY12 earnings.
While management has guided that a preliminary assessment foresees the impact to be minimal, we believe that the full extent can only be measured once the investigation has been completed.
Outlook Uninspiring near-term charter rates for the Petroleum and Chemical divisions.
Continuous overcapacity up to 2013-14 due to vessel newbuilding.
Unyielding bunker costs leads, which implies a continual of its high cost structure.
Forecast We are maintaining our earnings estimates at this juncture pending the company's 2Q12 results due out on 16th of Aug and likely further updates from management then.
That said, we reckon that the share price could see a negative knee-jerk reaction to the news in the short term.
Rating Maintain MARKET PERFORM
Valuation Our unchanged target price of RM4.76 is based on a sum-of-parts valuation, which excludes the assets of Petroleum and Chemical Shipping as we expect them to remain loss-making.
Risks 1) Lower than expected earnings from the individual divisions and 2) more negative surprises from MISC.
Source: Kenanga
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