News     MISC announced that its major shareholder, PETRONAS had failed to meet the Acceptance Condition of 90% that is required for the delisting of MISC.

As of last Friday, the acceptance level for the Offer (RM5.50/share) stood at only 86.07%.

Comments     We are surprised by the outcome as we had expected a better reception: 1) post the higher revised offer of RM5.50/share (from RM5.30/share); 2) and EPF's (the second largest shareholder) acceptance.

Given that Petronas' takeover bid has now failed, MISC will continue to be listed. However, we suspect that restructuring announcements could be on the cards; especially for the Petroleum and Chemical divisions, as we believe they were the main drivers for Petronas' bid to de-list MISC.

With the failed privatisation bid, we expect MISC's share price to weaken (the stock dropped 2.7% on Friday) as its valuations revert back to the current financial straits of the company.

Although we expect further improvement in FY13 (versus the volatile FY10-12 results), the company will still continue to be hampered by losses at both its Petroleum and Chemical divisions.

Outlook     We believe that the shipping industry will continue to face tough times, especially for the Petroleum and Chemical segments, which will likely continue to be hurt by 1) volatile charter rates versus unyielding bunker costs and 2) the imbalance in the demand and supply of vessels.

Forecast      Maintained at this juncture, pending further updates in its upcoming 1QFY13 results.

Rating     Revert to UNDERPERFORM

Valuation     We are reverting to our pre-takeover bid target price of RM4.61/share for now. Nonetheless, we will relook at our target price post 1Q13 results.

Our target price excludes the value of the assets of its Petroleum and Chemical Shipping division as we expect the divisions to remain loss-making in the near future.

However, should these divisions’ financial outlook improve or if MISC can successfully sell of these divisions, there could be an upside boost to our target price as we would need to include their NAVs into our valuation then.

Risks      1) Lower-than-expected charter rates; 2) a higher-than-expected bunker cost; and 3) Inability to pare of loss-making divisions at expected market prices.

Source: Kenanga