News

In an announcement to Bursa Malaysia, MISC has proposed to acquire the remaining 50% equity interest in Gumusut-Kakap Semi-Floating Production System (L) Limited (GKL) for a cash consideration of USD445.0m (RM1.9b based on rate of RM4.24/USD) from E&P Venture Solutions Co Sdn. Bhd. (EPV), a wholly-owned subsidiary of PETRONAS Carigali Sdn. Bhd. (PCSB),

MISC is the owner of the remaining 50% stake in GKL. The principal activity of GKL is the owning and leasing of the Gumusut-Kakap Semi-Floating Production System which is on a long-term lease expiring 25 years from commencement of commercial production in October 2014.

It will be a Related Party Transaction (RPT) as PCSB is a wholly-owned subsidiary of PETRONAS, which in turn owns a 62.7% stake in MISC. This is the second RPT involving PETRONAS after the acquisition of Petronas Maritime Services Sdn Bhd (PMSSB) for a cash consideration of RM54.1m back in June 2015.

Comments

To recap, MISC disposed a 50% stake in GKL to EPV back in October 2012 for a cash consideration of USD 305.7m, citing the reason of paring down the debt and improving its financial position as its gearing ratio by then was at 0.67x.

The offer price valued EPV at USD890m, which translates into 7.8x PER FY15 and 0.69x PBV FY15. The valuation is relatively cheaper as compared to the locally-listed FPSO player, including ARMADA (trading at 16.3x PER FY14) and YINSON (trading at 20.6x PER FY14). It will also be value accretive for MISC considering it is trading at 12.4x PER FY15.

We are mildly positive on the RPT as it enables MISC to fully consolidate the earnings of the asset which is already in operations and chartered on a long-term basis. We estimate that the consolidation will boost its FY16E and FY17E PBT by 6.3% and 5.3%, respectively. The acquisition will be funded by internally generated fund and is unlikely to be an issue for MISC in view of its net gearing of 0.02x as of FY15 and the acquisition will potentially raise its net gearing to 0.14x.

Outlook

Moving forward, we think the earnings growth momentum can be sustained with the charter renewal of five Puteri class carriers and five new-build contracts, the first two new LNG vessels are expected to be delivered in 2H16 and we expect the new delivery to drive earnings growth in FY16.

Forecast

We made no changes to our earnings forecast pending the completion of the acquisition.

Rating

Maintain OUTPERFORM

Valuation

Our TP is maintained at RM10.64, based on unchanged 1.25x PBV FY16E, on par with +1SD over 5-year mean.

Risks to Our Call

Lower-than-expected charter rates.

Worse-than-expected slowdown in global economy.

Source: Kenanga Research - 25 Feb 2016