News  Yesterday, MISC announced that the proposed disposal of its equity interest in MISC Integrated Logistics Sdn Bhd (“MILS”) to Golden Age Logistics Sdn Bhd for a cash consideration of RM250.0m has been called off as it is not able to fulfil its obligations as stipulated in the agreement.

 Recall on 21st March 2014, MISC had entered into an Agreement for Sale and Purchase of Shares for the disposal of its entire equity stake in the logistics subsidiary to the company mentioned above.

Comments

 This event came as a surprise to us as MISC was already looking to dispose its non-core logistics business to focus on core shipping and offshore business.

 However, contribution from this division is minimal at 0.8% of the group’s PBT in 9M14.

 As the offer price implies 1.0x PBV of the subsidiary’s net assets (RM246.5m), we did not expect any disposal gain for the group in our earlier report, therefore, we are not expecting any impact to MISC’s future earnings.

 Notwithstanding, we believe that MISC will continue to search for new buyers for its logistics assets which is in line with its strategy of disposing off non-core assets.

Outlook  The petroleum tanker segment might benefit from the current low crude oil price environment but we still expect muted earnings from the division in FY15 as rates remain below breakeven level (USD20,000-22,000/day). Chemical tanker segment’s recovery is expected to be flattish with eastbound Transatlantic trade remaining slow.

 With 5 Puteri-class LNG vessels slated to go out of charter in the next 3 years and significantly higher vessel deliveries expected in the coming years, we expect the LNG earnings to be softer as older vessels look to secure new LNG contracts with potentially lower rates than before.

 On top of that, there is 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 dependency 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 (1.2x FY15 forward).

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

 Easing of bunker cost.

Source: Kenanga