KUALA LUMPUR (Nov 3): Hong Leong IB Research (HLIB) has maintained its “Buy” rating on MISC Bhd with a lower target price of RM8.92 (from RM9.50) and said that MISC’s reported 9M16 core profit of RM1504.2 million, achieving 61.4% of HLIB’s FY16 earnings and 63.2% of consensus due to weaker than expected Petroleum tanker rate due to lower refinery throughput and weaker refiner appetite for crude post squeeze in refining margin.

In a note today, the research house said that year-on-year (y-o-y), core PATAMI for the group plunged by 54.8% to RM329.1 million in 3Q16 due to (i) weakness in Petroleum tanker rates (ii) accelerated depreciation as management assumed shorter asset useful life and (iii) lesser LNG vessel count working in the quarter.

“Quarter-on-quarter (q-o-q), group’s headline profit also fell by 33.2% in 3Q16 due to (i) lower seasonal Petroleum tanker rate (ii) lower working LNG vessels q-o-q due to vessel coming off charter and (iii) higher bunker cost.

“Year-to-date, group’s core net profit in in 9M16 weakened by 25.8% y-o-y mainly underpinned by (i) lesser number of LNG vessels in operations (early termination of Bintulu and Hakata, suspension of 2 Yemen LNG and Zamrud coming off charter (ii) lower Petroleum tanker rates and (iv) higher depreciation charge.

“We are cutting our earnings forecast for FY16/17 by 15/11% to account for lower Petroleum tanker rates and delayed earnings contribution from upcoming LNG vessels.

“Our SoP-driven target price is cut to RM8.92 from RM9.50 previously as we adjusted Petroleum tanker valuations to recent lower market values. Maintain Buy,” it said.

HLIB Research said its positive view is maintained at the stock premised on (i) bottoming of LNG earnings as no major termination is anticipated with potential additional earnings from new vessels (ii) stronger 2017 Offshore contribution with full year consolidation of GKL earnings and (iii) Potential recovery in Petroleum tanker rates upon new vessel standard enforcement.