INVESTMENT HIGHLIGHTS

• FY17 earnings exceeded estimates

• LNG registered PBT growth of +12.8%yoy

• Petroleum segment remains challenging

• Strong rebound in heavy engineering segment

• Maintain BUY with unchanged TP of RM7.68 per share

FY17 earnings exceeded expectations. MISC reported a normalised PATAMI of approximately RM565.0m in FY17. Excluding impairment losses on vessels and other exceptional items, the full year FY17 cumulative normalised earnings is around RM2.72b, exceeding our and consensus estimates by a variance of more than >20%.

LNG segment registered a loss before tax in 4QFY17. Despite a +60%qoq spike in LNG spot rates in 4QFY17 underpinned by higher demand from China during the winter season, the LNG segment registered a loss before tax of -USD20.2m. The bulk of the losses arise from the impairment of 5 LNG vessels amounting to around USD53.5m coupled with an impairment of receivables from Yemen LNG amidst political turbulence.

Incoming delivery of vessels. Two new Seri C class vessels are scheduled to be delivered by 1HFY18. Hence, the growth in the LNG fleet could mitigate the risk of lower charter rates and contract expiry of vessels.

Petroleum segment remains in the red for 4QFY17. Although there was a higher number of lightering days in 4QFY17, the petroleum segment recorded a loss before tax of USD70.9m compared to a PBT of USD7m in the same quarter of the preceding year. The loss is mainly attributable to the lower-than-expected spot tanker rates following oversupply of tonnage combined with the extension of OPEC production cuts. Aside from that, 7 vessels in this segment were impaired up to an amount around USD76.5m.

Growth in its Petroleum tanker fleet. MISC will receive delivery of two new Suezmax class and two new Aframax class vessels in 1QFY18. In view of the addition to its petroleum fleet size, MISC is well positioned to cushion a prolonged low charter rate environment with its current portfolio mix at 54:46, term to spot compared to 43:57 in the previous year.

Source: MIDF Research - 14 Feb 2018