Period

1Q15

Actual vs. Expectations

1Q15 core net profit of RM498.2m (+2.4%) was within expectations by accounting for 21.2% and 22.6% of our inhouse and consensus’ forecasts, respectively. Core net profit was derived after stripping off losses arising from forex translation amounting to RM11.9m.

Dividends

No dividend was declared for the quarter as expected.

Key Results Highlights

YoY, 1Q15 revenue grew 8.7% to RM2.5b thanks to the higher contribution from petroleum division (+17.8%), driven by higher charter rate of 31.0%-80.0% on the back of slow fleet supply growth and firm demand that managed to offset the decline in LNG division (-22.1%) as another Puteri Class carrier went out of charter in Feb 15, following the first Puteri Class carrier that was sidelined in 4Q14. As a result, PBT contribution from LNG division fell 22.1%, in tandem with the revenue. Petroleum division, however, continued to be profitable since turning into the black in 4Q14, recording 66.4% growth as compared to the previous year. As a result, core net profit inched up marginally by 2.4% to RM498.2m.

QoQ, revenue increased by 8.9% again due to the encouraging performance in petroleum division (+16.8%), which in turn skyrocketed the division PBT by 238.9% due to higher charter rates as well as additional contribution from newly-delivered Eagle Barents during the quarter. Operating profit was flattish at RM468.2m as the shortfall in LNG division was mitigated by the petroleum division and narrower losses in chemical division thanks to lower bunker costs arising from the lower oil prices and the utilisation of smaller fleets.

Outlook

Another Puteri Class vessel will go out of charter in 3Q15 to be followed by two more in mid-2016. To recap, the Group has managed to reach an agreement with Petronas to extend the charter for another 10 years. The vessels will undergo refurbishment which we understand will cost CAPEX of c.USD150.0m (RM525.0m) and be re-chartered subsequently (three in 2H15, one in 2H16, one in 2H17).

Moving forward, near-term earnings support should come from the resurgence in momentum of the petroleum division, which is set to take delivery of another Eagle Barents in 2Q15. Earnings growth over the longer run will be underpinned by the construction and delivery of five newbuild LNG carriers, which will involve CAPEX of USD1.1b (RM3.9b) or USD220.0m (RM770.0m) per vessel which is in line with industry prices. Management guided that two newbuilds will be delivered in 2H16, one in 1H17 and two more in 2H17. Thus, we are expecting a yearly revenue contribution of c.RM430.0m and yearly PBT of c.RM215.0m (RM43.0m per vessel) once all the new vessels are operational.

Change to Forecasts

No changes to our earnings forecast.

Rating

Maintain MARKET PERFORM

Valuation

We rolled over our valuation to FY16E, deriving our higher Target Price of RM9.35 (from RM8.70) based on unchanged 1.3x PBV, slightly above its 5-year mean PBV. The TP implied 16.4x PER FY16E which is within the range of 15.0x to 24.4x Fwd PER that we applied on Petronas-linked stocks.

Risks

Lower-than-expected charter rates

Worse-than-expected overcapacity

Source: Kenanga Research - 5 May 2015