Tanker rates of late have continued to hold up steadily and, despite the earnings setback from the LNG side, narrowing losses from MISC’schemical shipping, coupled with the higher FY15 PBT from its offshore division and turnaround from its petroleum tanker wing, should still give commendable growth to overall FY15 earnings (+24.8% YoY).Upgrade to BUY (from Neutral), as its unchanged SOP-based MYR9.49 TP now offers 12% upside.

• Petroleum tanker rates remain buoyant. Daily tanker rates of late have continued to hold up fairly well owing to low crude oil prices and cheaper bunker costs. This has given a lift to demand for shipments for ship operators. Based on Bloomberg numbers, average QTD in the 2Q15 period, daily tanker rates for Aframaxes (Caribbean-US Gulf) andbvery large crude carriers (VLCCs) (Arabian Gulf-South East Asia) are up by 161%/215% YoY (+53%/103% YTD) respectively, with the Baltic Dirty Tanker Index (BDIY) showing an increase of 18% YoY. On a QoQ basis, Aframax rates were down by 23% while VLCC rates and the BDIY are only down by 6% and 8% respectively. This supports our view that MISC should see its average daily tanker rates holding up well at an average increase of 20%, which we deem as conservative. At this rate, it shouldbe enough for the petroleum tanker division to turn around, from which we estimate a profit of MYR143.5m. We thus see more potential upside in earnings from this division.
• Liquefied natural gas (LNG) a near-term blip. We see FY15 PBT for the LNG division softening slightly by 9.7%, noting that three of its vessels go off charter in 1H15. These vessels are expected to commence new charters by 3Q15 onwards. Despite the setback from the LNG side, narrowing losses from MISC’s chemical shipping (from a loss before tax of USD38.4m to USD21m in FY15), coupled with the higher FY15 PBT from its offshore division (to USD179m from USD162m), and turnaround from its petroleum tanker wing, should still give commendable growth to its FY15 earnings (+24.8% YoY). We expect earnings growth to remain exciting into FY16, as profitabilityfurther improves from its petroleum tanker division, as this will be the year most of its charters are renewed.
• Concerns overdone. Following the share price retracement that offeredus a decent 12.4% upside to our TP, we therefore upgrade MISC to BUY(from Neutral). We believe near-term concerns on its LNG side are overdone, as overall earnings growth, moving forward, remainsencouraging. We maintain our SOP-derived TP of MYR9.49.