Results within our expectation; maintain HOLD

1Q16 core net profit was within our expectation but below street’s. We expect earnings to soften seasonally in 2Q16 and to pick up again in 2H16 on higher LNG and offshore earnings. We are also positive on MISC’s ongoing asset bargain-hunt, which will see the Group reaping the benefits when oil and gas cycle recovers. Maintain EPS forecasts, HOLD call and SOP-based TP of MYR8.60.

1Q16 core results: Stronger YoY, but weaker QoQ

Excluding the various exceptional items, 1Q16 core net profit of MYR593m (+22% YoY, -30% QoQ) made up 25% and 21% of our and street’s full-year estimates respectively. On a QoQ basis, core earnings was weaker across all segments mainly due to lower charter rates and accelerated depreciation. However, on a YoY basis, stronger petroleum earnings (on higher tanker rates) offset the weaker LNG, offshore and heavy engineering segments.

Softer near-term earnings

We expect earnings to soften in 2Q16 on: (i) weaker LNG earnings considering the disposal/termination/lower renewal rate of 5 LNG vessels; and (ii) weaker petroleum earnings on seasonality softer tanker rates; to be partially offset by (iii) better offshore earnings on the consolidation of the Gumusut-Kakap Semi-FPS earnings (acquisition of the 50% stake to complete in May 2016). However, overall earnings could pick up again from 3Q16 on the delivery of 2 LNG newbuilds in 2H16.

Bargain hunting for the future

We maintain our earnings forecasts, projecting a 13% drop in net profit in 2016 on weaker LNG and petroleum earnings. Amid the depressed oil & gas market and given MISC’s financial strength (net gearing: <0.1x), we are positive on MISC’s ongoing asset acquisition spree (i.e. offshore assets for deployment in brownfields) which will see the Group maximize the returns when the oil and gas cycle recovers.

Source: Maybank Research - 9 May 2016