MISC continues to exceed expectations, as its 9M15 earnings came in at 80%/82% of our/consensus’ estimates respectively – derived mainly from its petroleum tanker and offshore segments. Maintain BUY as we raise our SOP-based MYR11.09 TP (from MYR11.04, 22% upside) as a result of increasing our FY15F/FY16F/FY17F earnings by 12%/14%/14% respectively.

Core earnings of MYR2,024m. MISC core profit for 9M15 came in at an impressive 47.7% higher YoY. This was helped along by: i) higher contributions from the petroleum tanker segment (+232% YoY) and offshore division (+42% YoY), iii) the chemical tankers wing recording its first quarter of profit, and iv) a favourable USD/MYR rate for the company. These factors helped to offset the shortfall from its liquefied natural gas (LNG) tankers (-25% YoY) and heavy engineering (-22% YoY). The strong earnings beat our/consensus estimates, making up 80%/82% of full-year estimates respectively.

Petroleum tanker to drive earnings. We believe 4Q is likely to be another sensational quarter for the petroleum tanker segment. This should be driven by the strong demand for oil storage and transport,coupled with the shortage of tankers. The Puteri-class LNG tankercharter renewals are expected to be higher than we had estimated. Also,with the turnaround for the chemical tanker segment in FY16, we believe that this should boost MISC’s overall earnings. Over the longer term, we expect the company to be a potential beneficiary of the Petronas-led Pacific Northwest LNG development in British Columbia.

Maintain BUY with an SOP-based MYR11.09 TP. With the strong set of results, we upgrade earnings estimates for FY15/FY16/FY17 by 12%/14%/14% respectively. We continue to like MISC for: i) its long term contract visibility from its LNG tanker segment, ii) the turnaround in its chemical wing, and iii) higher profitability of its petroleum tanker division from the increased demand for vessels. Our revision in our earnings raises our SOP-based MYR11.09 TP (from MYR11.04), which implies an FY16F P/E of 11.7x.

Petroleum tankers. The petroleum tanker segment came in stronger than our expectations, with 9M15 revenue already making up 93% of our estimates. We upgraded our estimates for the petroleum segment topline by 8% as we raise rates for very large crude carriers (VLCC), Suezmax and Aframax vessels across the board. We are expecting 4Q to be another sensational quarter for the petroleum tanker segment, propped along by the expectation of another severe winter in the northern hemisphere. Management mentioned that fleet growth YoY globally is expected to be less than 10%. Along with low scrapping activities due to the st rong demand for crude tankers, it would continue to drive up freight rates for the petroleum segment. LNG re-charter rate. MISC made a provision of USD61.5m for its three Puteri class LNG vessels, as there was still a significant book value for these vessels in its balance sheet after the expiry of charters. From our back of the envelope calculationfor the provision, it appears that the discount to new charter rates is much lower than we had initially expected. The new charters for these vessels are expected to only be at a 15% discount when compared to our initial assumptions of 40%.

Chemicals turnaround. Its chemicals tanker segment continues to exceed expectations, as MISC’s strategy of a smaller chemicals fleet – as well as efforts to lower bunker costs – are working like a charm. For 3Q15, this business managed to register a profit of USD1.9m after several quarter of losses. We expect FY15 to register a lower loss of only USD4.9m vis-à-vis our earlier estimates of a USD12m loss.

Pacific Northwest LNG. Petronas is leading a joint venture (JV) with several other international energy companies to develop the Pacific Northwest LNG export terminal in British Columbia to tap into its vast shale gas reserves. The liquefaction capacity at the project is expected to have a total annual capacity of 12m tonnes pa (mtpa) and would require at least 10 LNG carriers. The facility is expected to start commercial operations in 2019 and we believe MISC should be one of the potential beneficiaries of the export terminal. This is owing to its position as a major player in the global LNG transportation segment. We believe MISC could easily provide at least five LNG vessels dedicated to this terminal.

Maintain BUY with MYR11.09 TP. We expect MISC to generate a 26% earnings growth in FY16. This should be driven by: i) the delivery of one new LNG vessel and the commencement of the charter renewals of the Puteri class that are expected to commence operation in 3Q16, ii) higher tanker rates for its petroleum tankers as these tankers would be renewed at a much higher rate, iii) chemical tankers are expected to be in the black after several years of losses as rates are expected to inch higher due to improved supply and demand dynamics as well as a higher utilisation rate, and iv) the resilience of its offshore division earnings. We maintain our BUY recommendation on the counter with our SOP-based TP of MYR11.09 implying an FY16 P/E of 11.7x.