MISC’s FY13 earnings exceeded our forecast  by 10%.  We foresee   FY14 earnings growth  in  its other divisions and lower losses from non-LNG tankers, but these will be partially offset by a drop in LNG tanker profits as  the 20-year charter on  one of its vessels (out of a total upcoming 5) will be expiring, and is likely to be renewed at a substantially lower rate. Maintain NEUTRAL call, with a higher FV of MYR6.49.

• Better  than  expected.  Excluding  exceptional  expenses  amounting  to USD24m and a USD182m  upfront gain on disposal   through  the  finance lease  for  Gemusut  Kakap  Floating  Production  System  (GK),  MISC’s FY13  core  net  profit  of  USD504m  (up  70%  y-o-y)  was  10%  and  17% above  our  estimate  and  consensus    respectively.  The  higher-thanexpected  profit  was  attributed  to  its  offshore  units  and  lower-thanexpected losses from its chemical segment owing to lower bunker prices. Meanwhile,  losses  from  petroleum  tanker  shipping  narrowed  q-o-q,thanks  to  the  strong  lift  in  rates  in  4QFY13.  However,  on  a  full-year basis,  the  losses  from  the  petroleum  tanker  segment  disappointed  as they were down by only USD8m, to a core PBT loss of USD152m.   
• Key  briefing  highlights.  Management  remains  cautious  on  the petroleum and chemical  tanker segment,  which it expects  to remain loss making  in  FY14.  Meanwhile,  volume  at  the  Gulf  –  which  was  on  a decline  earlier  –  has  improved,  and  will  propel  Aframax  tanker  rates higher  (we  expect  a  15%  y-o-y  increase).  Elsewhere,  the  lifting  of sanctions on Iran will lead to improving demand for chemical shipping as the country resumes  exports.  On the LNG side,  the 20-year charter on one vessel will  be expiring in  July, and  if re-chartered (talks  are ongoing to put  it  back  on a  long-term charter),  it is  likely  to  fetch a much lower rate given its  age (20 years). We have  factored  this  in.  The 12% y-o-y core  earnings  growth  in  FY14  will  be  driven  by  the  delivery  of  FPSO Cendor  in  2QFY14,  the  expansion  of  MISC’s  tank  terminals,  full  year contribution  from  GK,  growth  in  the  heavy  engineering  division  and narrower losses from petroleum and chemical tankers.
• Maintain  NEUTRAL.  We  raise  the  contribution  from  the  offshore segment, which  will be offset by the lower earnings anticipated from the LNG  segment  due  to  the  lower  rates  anticipated.  The  revision  in  total earnings is minimal (<1%). Maintain NEUTRAL, at a higher MYR6.49 FV (from MYR6.09) due to the higher equity value for the offshore unit.

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Company Profile
MISC is a shipping conglomerate that has businesses in LNG shipping, petroleum tankers, offshore, tank terminals and exposure to O&G fabrication.

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Source: RHB