STOCK FOCUS OF THE DAY\MISC : Some daylight through the fog HOLD
We maintain our HOLD recommendation on MISC with an unchanged fair value of RM7.35/share, which is at a 20% discount to our sum-of-parts valuation of RM9.19/share. This implies a FY17F EV/EBITDA of 9x - 20% below its 3-year average of 11x. We have marginally tweaked MISC’s FY17F-18F earnings as its normalised net profit of RM2,261mil was within our expectations but above street’s RM2,128mil; coming in 2% below our forecast while 6% above consensus. We also introduce FY19F earnings with an 11% growth premised on higher utilisation of its LNG vessels together with an increase of one LNG vessel, and 5% increase in petroleum charter rates. MISC’s 4QFY16 revenue rose10% QoQ to RM2.5bil due to the stronger dollar given that the group’s US$ revenues actually contracted 1% QoQ due to lower LNG charter following the expiry of LNG Puteri Zamrud’s contract, which will be redeployed to a new 10-year charter in October this year together with the halving of MMHE’s income from low order intake.
The winter season drove LNG spot charter rates up 12% QoQ in December as China and Korea’s natural gas imports rose 38% and 12% respectively, while supply was constrained by Gorgon in Australia and Angola. Large tanker charter rates surged as VLCC rates tripled QoQ to US$59k/day, seasonally-driven largely by China demand as its own local production declined amid strategic reserve stocking up. Likewise, smaller tanker rates also rose as Aframax doubled QoQ to US$28k/day while Suezmax rose 78% to US$37k. OPEC’s production cut, which began this year, could negatively affect shipping demand even though new tanker deliveries are becoming more rational from 2018 onwards. Hence, we believe the stock currently trades at a fair FY17F EV/EBITDA of 10x, near its 3-year average of 11x.
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