MISC’s 1HFY13  earnings,  which  were  6%  above  our  estimate,  could have been better if not for the poor showing at its petroleum and heavy engineering  divisions.  Despite  its  now-weaker  ties  with  Petronas, MISC’s earnings outlook may improve due to narrowing losses from its petroleum  division.  We  maintain  our  BUY  call,  but  lower  our  FV  to MYR5.86, given the lower valuation for the LNG segment.  

  Within  forecast,  but  could  have  been  better.  MISC’s  1HFY13 earnings  were  6%  above  our  but  within  consensus  estimates.  We  had hoped for better earnings, had it not been for the lower contribution from the  heavy  engineering  division,  as  well  as  wider  losses  from  the petroleum tanker segment due to reduced earning days as some vessels went  idle  for  inspection  before  being  put  up  for  sale.  2QFY13  earnings fell  35%  y-o-y  and  17%  q-o-q,  but  for  1HFY13,  the  national  shipping corporation  still  posted  a  strong  82%  jump  in  earnings  after  exiting  its liner  business.  Lower  bunker  prices  (down  by  6-8%  y-o-y)  has  also cushioned the earnings drop.

  Briefing takeaways: i) The petroleum division is expected to improve as it  disposes  of  more  vessels,  which  would  increase  its  exposure  to  time charters  to  70%  from  50%  and  lead  to  lower  costs  and  higher  rates moving  forward,  ii)  China’s  slowdown  could  renew  concerns  of  a prolonged  recovery  for  chemical  tanker  shipping  to  2015  (vs  2014),  iii) Petronas’ strategy to  acquire  own  vessels  is  not  a  complete  loss  for MISC,  as  this  allows  the  latter  to  start  working  on  securing  third  party contracts  (which  it  had  to  forego  last  year,  due  to  its  commitment  to Petronas).  Some  near-term  potential  contracts  are  likely  to  be  liquefied natural gas (LNG) projects in Papua New Guinea, Nigeria, Australia and Mozambique.  Since  Petronas  has  yet  to  decide  how  many  ships  to procure, MISC (the project manager)’s Management is eyeing a fee equivalent to 25% of the rates, in line with the market current trend.  

  Nudging  up  forecasts.  Still  a  BUY.  We  raise  our  FY13/FY14/FY15 forecasts  by  2%/0%/1%  due  to  the  lower-than-expected  tax  incurred. Petronas’ decision to buy its own LNG vessels has prompted us to lower our valuation for MISC’s LNG division. As such, we trim our SOP-based FV  to  MYR5.86  from  MYR6.40.  On  expectations  of  narrowing  losses from the petroleum division, MISC’s growth prospects remain promising despite its weakening ties with Petronas.  

Source: RHB