This article first appeared in The Edge Financial Daily on September 6, 2019

KUALA LUMPUR: Shares in MISC Bhd rose to a three-and-a-half-year high yesterday after analysts upgraded the stock on higher earnings expectations.

The stock surged as much as 5.18% to hit an intraday high of RM7.53, before paring gains to close at RM7.49, still up 33 sen or 4.61% over Wednesday’s closing of RM7.16. This brings MISC’s market capitalisation to RM33.43 billion.

The counter saw some 4.16 million shares transacted yesterday, about three times higher than its 200-day average volume of 1.78 million shares. Year to date, the counter has appreciated 33.11%.

Analysts said MISC had recently organised a meeting with them to update the investment fraternity on the company’s outlook.

According to Bloomberg, of the analysts who track the counter, four have a “buy” call, nine have a “hold” call and one with a “sell” call, with target prices (TPs) ranging from RM6.30 to RM8.70.

AmInvestment Bank Bhd has upgraded its recommendation on MISC to “buy” from “hold”, with a higher fair value of RM8.70 from RM6.65 previously, due to higher earnings expectations for the shipping company.

“Our financial year ending 2020 forecast (FY20F) to FY21F earnings have been raised 4% to 14% on an increased number of shuttle tankers which will be operating in Brazil — an incremental two in the fourth quarter of FY19 and five in FY20.

“The management has indicated that prospects for the past two months have substantively improved from  the scarcity of projects during 1HFY19 (first half of FY19). Hence, MISC expects an active bidding market to materialise in all its key segments, offshore floaters, LNG (liquefied natural gas) and shuttle tankers,” said AmInvestment analyst Alex Goh in a note yesterday.

UOB Kay Hian analyst Kong Ho Meng has also upgraded MISC to “buy” from “hold”, with a new TP of RM8.20 (up from RM6.75 previously), as the research house is positive about the company’s prospects given that the management is gearing up to bid for multiple new projects worth US$4 billion (RM16.8 billion).

To support new projects, MISC has also budgeted capital expenditure (capex) amounting to US$1 billion.

“We now take a view that MISC is preparing for a new but much-needed growth phase, leading to potential multiple contract wins.

“The strategy to boost our long-term mix is positive in the cyclical shipping sector, and will the support the stepping-up of earnings and cash flow generation in the next four to five years. This sentiment may override near-term earnings volatility, and the low but stable dividend yield,” Kong said.

Kong has now raised UOB’s net profit forecasts for MISC 2% for 2019, and 8% and 9% higher for 2020 and 2021 respectively.

Kong said the new TP of RM8.20 is derived from sum-of-the-parts (SOTP) valuation of 18 times 2020 forecast price-earnings ratio and 3.7% dividend yield.

Meanwhile, TA Securities Holdings Bhd said it had not change its bearish stance on the Malaysian energy-shipping firm.

It noted that MISC is upbeat that its current tender prospects will help it hit its 2019 target of US$1 billion in fresh investment capex and is confident about winning contracts in Petrobras’ massive oil and gas services project in December.

“Nevertheless, TA prefers to stay on the sidelines until MISC actually secures a major project to catalyse earnings growth. TA maintains its “sell” rating on MISC, with an unchanged TP of RM6.30,” it said.