Period  4Q13/FY13

Actual vs. Expectations Above expectations. MISC recorded a 4Q13 core net profit of RM493.8m (25.0% QoQ, 55.3% YoY), bringing its FY13 NP to RM1513.2m (19.9% YoY) which made up 117.5%% and 117.2% of our and the consensus full-year estimates, respectively.

 The key positive deviation was mainly due to: (i) leasing profit through finance lease for FPS Gemusut and (ii) losses in petroleum and chemical tanker division, which narrowed more than expected.

 Core net profit excludes exceptional items.

Dividends  The group has declared 5.0 sen dividend in 4Q13, which translates into a yield of 0.8%.

Key Result Highlights YTD YoY, the FY13 revenue saw a marginal decline of 0.9%, underpinned by disposals of vessels in Petroleum and Chemical tankers division, which narrowed losses; but the drop was offset by improvement in charter rates. Core net earnings registered strong growth of 19.9% due to 7-month contribution from Gemusut Kakap and narrower losses from the Petroleum and Chemical tanker division.

 QoQ, core earnings registered strong growth of 25.0% mainly driven by seasonally stronger charter rates for petroleum tankers, especially the VLCC tankers and stronger chemical tanker market due to the end-year rush.

Outlook  Management expects the delivery of vessels for the global petroleum market in 2014 to be similar to 2013, but the overall outlook has improved as they have indicated that the demand outlook for vessels has actually improved.

 Chemical tanker segment is expected to be fairly stable in 2014 but the removal of sanction on Iran is viewed positively for longer-term chemical exports.

 With one of the Puteri class LNG vessels going out of charter and significantly higher vessel deliveries expected in 2014, we expect the LNG segment to remain flattish or maybe even slightly worse off in 2014 due to the relatively aging fleet and expected oversupply of vessels.

Change to Forecasts We have revised our FY14 earnings upwards by 11.2% as we factor in lease earnings for Gemusut Kakap FPS at PBT level and higher operating margin for Petroleum (-13.0% to -11.0%) and Chemical division (-11.0% to -9%). In the meantime, we have also introduced our FY15 earnings forecast, which features: (i) lower losses from the Petroleum and Chemical divisions; and (ii) a full-year of Gumusut-Kakap JV earnings.

Rating Maintained at UNDERPERFORM.

Valuation  Our PBV-derived TP has been revised upwards to RM6.34 by pegging 1.2x from 1.0x previously to FY15 BVPS of RM5.28 given the improving outlook for the shipping industry.

Risks to our Call Higher-than-expected tanker charter rates.

 Lower bunker cost.

Source: Kenanga