News  On 21 March 2014, MISC entered into an Agreement for Sale and Purchase of shares to dispose MISC Integrated Logistics Sdn. Bhd. (MILS), a wholly-owned subsidiary of MISC, to Golden Age Logistics Sdn. Bhd., a special purpose vehicle wholly owned by Utusan Printcorp Sdn. Bhd for a cash consideration of RM250.0m.

 As at 31 December 2013, the net assets of MILS stood at RM246.5m, which implies a PBV value of 1.0x based on selling price.

Comments  This disposal is not a surprise to us as MISC has been looking to divest their non-core businesses and focus on their core shipping business.

 In fact, we believe that MISC has exited the integrated logistics business at a favourable price. Based on the offer price of RM250.0m, the implied trailing PER is 21.8x based on estimated earnings of RM11.5m on the assumptions of: (i) USD: MYR exchange rate of 3.12 and (ii) effective tax rate of 25.0%. The implied valuation is at a premium compared to MILS’ industry peers which are trading at a PER range of between 10.0x and 16.0x.

 We are positive on this disposal, as this allows MISC to cash out from their logistics business at a favourable price which also frees up more cash for investments in energy and petroleum related shipping business in which the operating conditions may improve in the medium-term.

 The completion date of this disposal is still uncertain at the moment as the finalisation of the deal is conditional upon: (i) approvals from relevant authorities, (ii) letter of consent from MILS’ financiers, and (iii) letter of confirmation from Petroliam Nasional Berhad.

 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 the demand for vessels have actually improved.

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

 With one of the Puteri class LNG vessels going out of charter and coupled with significantly higher vessel deliveries expected in 2014, we anticipate the LNG segment to remain flattish or even slightly worse off in 2014 due to its relatively old fleet age and oversupply of vessels.

Forecast  As a result of the disposal, we have trimmed our core earnings forecast for FY14 and FY15 by 0.5% and 0.6%, respectively, to account for the loss of income from the logistics business.

Rating  Maintain UNDERPERFORM

Valuation  Our PBV-derived TP has been increased to RM6.87 from RM6.34 previously, pegged at 1.2x to FY14 BVPS due to some housekeeping adjustments.

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

 Lower bunker cost. 

Source: Kenanga