Tanker  rates  remain  volatile,  with  no  clear  indication  of  a  near-term recovery.  However,  our  investment  thesis  on  MISC  is  centred  on  its diversified business portfolio that has been able to cushion the losses (which  are  narrowing)  at  its  shipping  entities.  Furthermore,  we  opine that  there  is  still  further  value  in  its  liquefied  natural  gas  (LNG) business.  Thus,  we  retain  our  BUY  call  on  this  stock  and  keep  FV unchanged at MYR5.86.

- Lacklustre  tanker  market.  Tanker  rates  remain  volatile,  with  no  clear indication of a near-term recovery. However, daily earnings of very large crude carriers (VLCCs) have shown some modest rebounds since early September on improved demand driven by  shipping activities in the Far East – long-haul voyages mitigates tonnage oversupply to some extent. Aframaxes,  to  which  MISC's  tanker  fleet  has  a  significant  exposure, continue to see an oversupply as demand in the Gulf of Mexico remains weak.  Meanwhile,  on  the  chemical  front,  Europe  is  still  facing  tonnage surplus  while  there  have  been  some  activities  on  the  transatlantic westbound route. Volatility in the tanker space will persist in the near- to mid-term, with recovery expected only in 2015, at the earliest. 

- Four LNG tankers coming. Hyundai Heavy Industries (009540 KS, NR) recently  won  a  contract  from  Petronas  to  build  four  150,200  cu  m  LNG carriers to be delivered from 2016 onwards. As these ships were ordered by its parent, MISC will only be earning revenue from the operations and maintenance  contracts  of  these  vessels.  Its  estimated  share  is  around 20%  of  the  actual  daily  chartered  value.  Despite  the  lower  revenue projected,  MISC  benefits  by  not  being  burdened  by  substantial  capex, which would have strained its balance sheet.

- Hunting  for  value.  Our  investment  thesis  on  MISC  is  centred  on  its diversified  business  portfolio.  As  its  other  businesses,  excluding  the heavy  engineering  division,  are  still  seeing  earnings  growth,  this  could well cushion the losses suffered by its petroleum and chemical shipping divisions. Furthermore, we opine that there is still further value in its LNG segment  (see  rationale  above).  We  retain  our  BUY  call  on  MISC,  with our FV unchanged at MYR5.86.

Source: RHB