Friday 29 Mar 2024
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MISC Bhd
(Dec 23, RM7.28)
Maintain “hold” with a target price (TP) of RM7.40:
Year-to-date (since Jan 14) in line with our positive stance, MISC’s share price has risen by a laudable 29, backed by improving quarterly earnings and its ongoing initiatives to divest its non-core business. 

This year, MISC disposed of its entire equity interest in MISC Integrated Logistics for RM250 million in March 2014, and earlier this month MISC sold its 15.7% stake in NCB Holdings for RM222 million to MMC Holdings. 

These moves help strengthen MISC’s financial position to focus on its core business in energy- and petroleum-related shipping.

In 2015, there will be another two liquefied natural gas (LNG) carriers expiring. We gather MISC is still negotiating for new contracts for its expiring vessels. 

Over the past year, the LNG time charter rate (up to 3 years) has fallen by 28% year-on-year to an average of US$57,500 (RM200,675) 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.

We maintain our earnings forecast as well as our “hold” recommendation on MISC. Also intact is our 12-month sum-of-parts TP of RM7.40. Long-term contracts in LNG will continue to provide stability to MISC’s earnings (30% of revenue and 85% of earnings). Potential upside includes an additional bonus dividend payout, following its non-core business divestment.

Risks to our recommendation include: i) a significant drop in trade volume following a softer-than-anticipated global economic landscape; ii) a spike in oil price, which may lead to a reversal in the downtrend in bunker cost (currently below US$500 per tonne) and iii) a significant drop in tanker rates. — Affin Hwang Capital Research, Dec 23

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This article first appeared in The Edge Financial Daily, on December 24, 2014.

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