INVESTMENT HIGHLIGHTS

• Selling its tank terminal stake to Dialog

• No longer involved in the tank terminals business

• Minimal earnings impact

• Maintain NEUTRAL with reduced TP of RM7.43

Selling its tank terminal stake to Dialog. MISC announced that it has agreed to dispose its 36% effective stake in its tank terminal business Dialog Group Berhad for RM193m. Under the tank terminal business, MISC’s joint-venture company operates the Langsat Terminal 1 and 2 facilities comprising of 42 oil tanks with total storage capacity of 647k cubic meters. The segment offers bulk liquid storage and handling facilities for the oil & gas and petrochemical industry.

No longer involved in the tank terminals business. The latest disposal follows an earlier exit of its 50% stake in tank terminal operator VTTI B.V. (VTTI) for US$830m in August 2015. MISC’s intention to dispose assets which it views as non-core is well known, in order to place greater focus on its core energy transportation business. This marks MISC’s exit of the tank terminal business, having ventured into the business via the Langsat Terminal facilities in 2009 and its investment in VTTI in 2010.

Minimal earnings impact. We do not expect the disposal to significantly impact MISC’s earnings, as the disposal consideration of RM193m represents less than 0.4% of MISC’s total assets. In addition, earnings contribution from the segment had not been meaningful to MISC which derives the bulk of its earnings from its core LNG, petroleum, offshore and heavy engineering businesses.

Maintain NEUTRAL with TP of RM7.43. Our target price is pegged to a 0.9x price-to-book which is -1.5 standard deviations below its 5- year average amid the challenging overcapacity environment. Factors that could prompt us to revise our call on MISC include a change in supply-demand dynamics in the LNG & petroleum transportation market and the securing of sizable projects in the offshore segment

Source: MIDF Research - 26 Sept 2017