MISC Bhd 
(June 30, RM7.72)
Upgrade to “hold” with an unchanged target price (TP) of RM7.60: Since April 30, MISC’s share price has fallen by 15%. At the current price, we believe most of the negatives are reflected in its share price. Fundamentally, MISC is still backed by its liquefied natural gas (LNG) business. 

Although LNG rates have been on the downtrend, the impact is capped as all of its LNG tankers are secured on a long-term charter. In May 2015, the LNG time charter rate (up to three years) fell by 28% year-on-year to an average of US$57,500 (RM217,350) per day currently.

Given the current oversupply and scheduled delivery over the next few years, we expect rates to continue to be on the downtrend. In the near term, while MISC has secured firm contracts for its expiring LNG vessels, earnings from the LNG segment may be impacted as three vessels will be off charter for refurbishment, which normally takes between three to five months. 

We tweak our financial year 2015 (FY15) to FY17 earnings forecasts slightly after updating the audited figures. Given the recent drop in share price, we are upgrading MISC to “hold” (from “sell” previously) as we believe the group’s fundamentals remain intact. Also intact is our 12-month sum-of-parts derived TP. In our view, MISC’s long-term LNG contracts should continue to provide stability to its earnings (about 30% of revenue and 85% of earnings). — June 30, Affin Hwang Capital

This article first appeared in The Edge Financial Daily, on July 1, 2015.