MISC; Do not accept offer; Offer price: RM5.30; MISC MK

In the Independent Advice Circular to MISC’s minority shareholders, AmInvestment Bank (AIB) stated its view that the offer to privatize MISC is not fair but reasonable and that minorities should accept the offer. AIB said that the offer at RM5.30/share is not fair as it was below its Sum-of-Parts (SOP) Value of between RM5.69 to RM6.10 per share. However, AIB believes the offer to be reasonable considering other factors including outlook of the shipping industry, MISC’s prospects and risk in realization of vessel market values. In our view, minorities should not accept the offer (closing at 5pm 19 March) for the following the reasons:-

1. Too low. The RM5.30 offer is priced at only 1.1x book, or -1 SD of its 10-year P/Book mean. We believe the offer is low, given MISC’s strong earnings growth, world class assets and potential for new LNG and oil & gas projects. The offer is below our initial RM6.00 TP, based on 1.3x book, equivalent to its 10-year mean.
2. Strong earnings growth. We expect earnings to grow 50% over FY12F-FY14F, on the back of significantly narrowed/absence of container losses and steady strengthening of LNG/oil & gas earnings. This is despite factoring in continued losses for the petroleum and chemical segments for the next two years.
3. Unrealized value from impressive assets. The US$2bn Gumusut-Kakap Semi-Floating Production System (FPS), the first deepwater FPS in the Asia-Pacific region, is to be commissioned in 2H13. In our view, earnings and full value from this asset has not yet been realised.

Source: HwangDBS Research - 11 Mar 2013