Period   4Q14/FY14

Actual vs. Expectations   FY14 core net profit of RM1,942.5m (-10.2% YoY) was above our expectation (118%) but within the consensus’ (101%). The positive deviation can be attributed to the better-thanexpected recovery of the Petroleum division.

Dividends   DPS of 6.0 sen was declared, bringing full-year pay-out to 10.0 sen/share vis-à-vis 5.0 sen/share in FY13, which was above our expectation of 4.0 sen/share.

Key Results Highlights   YoY, FY14 revenue increased marginally by 3.6% to RM9,296.3m, driven by the petroleum segment (+11.3%) due to higher charter rate on the back of weak crude oil prices and higher storage trades. Meanwhile, core PBT managed to inch up by 4% thanks to the steady performance of LNG segment (+4.5%) as well as the recovery in petroleum segment, which saw LBT narrowed by 84.4%, but dragged down by the heavy engineering segment (-39.6%) as most of its projects were still at the early stages thus registering lower margins, and tank terminal (-66.6%) following the lower earnings recognition post-VTTI listing.

  QoQ, core PBT surged overwhelmingly by 94.2% despite the weak performance in LNG segment as Puteri Intan went out of charter at the end of 3Q14. However, the offshore segment (+87.7%) came to the rescue with the commencement of FPSO Cendor, further aided by the petroleum segment (+159.3%) due to higher charter rate during the quarter, which rose by 17%-23%.

Outlook   Moving forward, management expect the LNG segment in FY15 to be challenging with soft charter rate while 2 more LNG vessels will be out of charter in FY15 with another one in FY16 after one was idling after 3Q14. Thus, securing or renewing contracts would be crucial in order to sustain the earnings momentum.

  Management is upbeat with the charter rate growth in petroleum segment in FY15 judging by the low crude prices and increased storage trades, which is in line with our expectations as we foresee the segment to return to the black in FY15.   As for the offshore segment, earnings growth in FY15 will be underpinned by the newly commenced FPSO Cendor with the Group not expecting to see any new contract considering the low crude oil prices.

  We remain cautious on the overall outlook of MISC as we think that it will be rather challenging to secure new charter for its LNG vessels in view of the significantly higher vessel deliveries in 2014. We do not think the recovery in petroleum segment and the full recognition of FPSO Cendor will be sufficient to cushion the earnings downside from the LNG segments.

Change to Forecasts   We revised our FY15E earnings (+0.8%) after updating the latest MMHE’s FY15E earnings as well as making housekeeping changes post-FY14 results. We also take this opportunity to introduce our FY16E earnings, which implies marginal decline in net profit due to the reducing recognition of Gumusut Kakap FPSO.

Rating Maintain UNDERPERFORM Valuation

  We keep our Target Price unchanged at RM7.49, based on 1.2x FY15E PBV, which implies 5-year mean PBV. The TP represents 17.7x FY15E PER, slightly above -0.5 SD 5-year mean.

Risks to our call   Better-than-expected tanker charter rates.

  Further easing of bunker cost.

Source: Kenanga