News  MISC announced that they have entered into an Agreement for Sale and Purchase of Shares with

MMCV and MMC for the disposal of 15.7% equity interest held by MISC in NCB, comprising 74.0m ordinary shares for a total cash consideration of RM222.0m on the basis of off-market Direct Business Transaction.

 The deal amounts to RM3.00/share, which is at 14.1% premium to NCB’s last closing price. This is also implying c.1.0x PBV valued based on latest BVPS of RM3.00/share.

 The disposal is consistent with MISC’s intention to divest its non-core, non-energy related investments. In the past two years, the group has exited from its struggling liner shipping business and integrated logistics business.

Comments We believe this deal is neutral with regard to MISC’s core earnings as their 15.7% equity stake in NCB is classified as non-current financial assets in their balance sheet, which is marked-to-market during annual consolidation of its financial accounts. However, they would realise maximum RM15.8m non-core loss based on non-current investments as reported in its other comprehensive income in its latest results.

 On the valuation front, we believe the implied 1.0x PBV value is fair given that its peers are trading at the range in excess of 2.0x. In addition to that, we believe the pricing of the deal is slightly more favourable for MISC as the current core business of NCB is suffering from strong competition amidst their restructuring. allows MISC to free up RM222.0m cash to be utilised in their core business focus namely LNG and Offshore segments, which provide stability in their earnings due to their long-term contract nature.

Outlook  Overall petroleum segment has improved on YoY basis, but we still expect the segment to be in the red in FY14. Chemical tanker segment’s recovery is expected to be flattish with eastbound Transatlantic trade remaining slow. On top of that, there is a marginal concern on the demand side of LNG as the Nuclear Regulatory Authority of Japan has announced the restarting of two nuclear plants to reduce its dependence on LNG as energy source.

Forecast  Due to the absence of earnings impact from the deal, we maintain our earnings forecasts for the group.

Rating Maintain UNDERPEFORM

Valuation  Maintain forward FY15 PBV-derived TP of RM7.49.

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

 Escalation of bunker cost.

Source: Kenanga