STOCK FOCUS OF THE DAY
MISC : Weak tanker rates dampen 2HFY17 outlook 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, 1 SD below its 2-year average of 10x. MISC’s 1HFY17 interim dividend of 14 sen, translating to a payout of 51%, is within expectations.
Our MISC's FY17F-19F earnings are maintained as the group’s 1HFY17 core net profit of RM1,384mil (excluding RM134mil impairment for LNG vessel Tenaga Lima and RM17mil liquidation loss from MISC Agencies Japan) was generally within expectations, accounting for 63% of our FY17F earnings and 67% of consensus. As a comparison, 1HFY16 accounted for 60% of FY16 core net profit.
MISC’s 2QFY17 core net profit declined 19% QoQ to RM707mil in tandem with a 23% QoQ drop in revenue to RM2.3bil. We expect 2HFY17 earnings prospect to be weaker as tanker shipping rates have significantly declined since the beginning of the year amid rising newbuild deliveries, partly cushioned by the arrival of LNG vessel Seri Cempaka recently and additional petroleum tankers later this year. We believe the stock currently trades at a fair FY17F EV/EBITDA of 9x, slightly below its 2-year average of 10x.
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