MISC  posted  core  earnings  of  MYR1.90bn,  in  line  with  our  estimate. Maintain BUY, as we lift our SOP-based TP to MYR9.38 (21% upside) on the back of our FY15/FY16 earnings upgrade of 11%/6% respectively. Its petroleum  tanker  unit  booked  a  profit  in  4Q14  from  strong  petroleum tanker rates  –  we expect it to be profitable in FY15. This,  coupled with the contribution from FPSO Cendor, may lift earnings further for MISC.

In line.  MISC posted a net profit of MYR2.20bn in FY14. After stripping off a total net exceptional gain of MYR301m, its core net profit amounted to  MYR1.90bn  –  deemed  as  within  expectations  as  it  only  missed  our full-year forecast  by 3%  but  was above consensus by 8%. Some of the exceptional  items,  among  others,  were  related  to  the  disposal  throughthe  finance lease of  the  FPSO Cendor  (USD206.6m), the impairment of its liquefied  natural  gas  vessel  (USD93.2m)  and  a reversal  of  previous provisions made from its petroleum unit (USD21.7m).

Briefing  highlights. Overall, losses  in  FY14 from  its  petroleum   tankerand  chemical  unit  narrowed  substantially,  with  the  former  recording another  quarterly  profit  in  4Q14  –  thanks  to  the  buoyant  rates  arising from  the  tight  supply  of  vessels  available,  as  shipment  and  floating storage  demand  soared  in  light  of  the  low  oil  price  environment.  The currently low bunke r prices could also cut  losses  further  for its chemical tanker  division.  We  expect  MISC  to  firm  the  charter  contract  for  its expired  LNG  vessel  in  the  coming  weeks,  which  would  mitigate  ourconcerns  over  its  charter  not  being  renewed.  MISC’s  offshore  division could be its earnings driver in FY15 due to the full-year contribution fromFPSO  Cendor,  aside from petroleum tanker division,  which we expect to be in the black in FY15. Its capex commitments may  be minimal in the next two years, aside from  the upcoming two shuttle tanker newbuilds  –which would provide room for dividends to rise.

Forecasts. We lift  our  FY15F/ FY16F  earnings by 11%/6% on the back of better-than-expected earnings contributions from Gemusut Kakap and FPSO Cendor, coupled with the upgrade of our USD/MYR assumption to MYR3.50 for FY15/ FY16 from MYR3.30 earlier.

Maintain BUY. The earnings upgrade and higher USD/MYR assumptionlifts our SOP-based  TP  to MYR9.38 from MYR8.15,  on top  of the higher asset value  of its  petroleum tankers (second-hand values have risen  by an  average  of  40%  YoY)  as  well  as  higher  earnings  from  its  offshore division. 

Source: RHB