MISC Bhd
(Jan 16, RM7.57)
Maintain underperform with a target price (TP) of RM7.49: Last Thurdsay, MISC Bhd announced that the proposed disposal of its equity interest in MISC Integrated Logistics Sdn Bhd to Golden Age Logistics Sdn Bhd for a cash consideration of RM250 million has been called off as it is not able to fulfil its obligations as stipulated in the agreement.

On March 21, 2014, MISC entered into an agreement for sale and purchase of shares for the disposal of its entire equity stake in the logistics subsidiary to the company mentioned above.

This event came as a surprise to us as MISC was already looking to dispose of its non-core logistics business to focus on core shipping and offshore business.

However, contribution from this division is minimal at 0.8% of the group’s profit before tax in nine months of financial year 2014.

As the offer price implies 1.0 times price-to-book value ratio (PBV) of the subsidiary’s net assets (RM246.5 million), we did not expect any disposal gain for the group in our earlier report; therefore, we are not expecting any impact to MISC’s future earnings.

Notwithstanding, we believe that MISC will continue to search for new buyers for its logistics assets which is in line with its strategy of disposing of non-core assets.

On outlook, the petroleum tanker segment might benefit from the current low crude oil price environment but we still expect muted earnings from the division (in FY15 as rates remain below break even level (US$20,000 [RM71,000] to US$22,000/day). Chemical tanker segment recovery is expected to be flattish with eastbound Transatlantic trade remaining slow.

With five Puteri-class liquid natural gas (LNG) vessels slated to go out of charter in the next three years and significantly higher vessel deliveries expected in the coming years, we expect LNG earnings to be softer as older vessels look to secure new LNG contracts with potentially lower rates than before.

On top of that, there is marginal concern over the demand side of LNG as the Nuclear Regulatory Authority of Japan has announced the restarting of two nuclear plants to reduce its dependence on LNG as energy source.

Due to the absence of earnings impact from the deal, we maintain our earnings forecasts for the group.

We maintain underperform rating and forward FY15 PBV-derived TP of RM7.49 (1.2 times FY15 forward).

Risks to our call include better-than-expected tanker charter rates and easing of bunker cost. — Kenanga Research, Jan 16

This article first appeared in The Edge Financial Daily, on January 19, 2015.