AmWatch - MISC : Improvement in petroleum tanker rates HOLD, 10 Nov 2014

STOCK FOCUS OF THE DAY

MISC : Improvement in petroleum tanker rates HOLD

We maintain HOLD on MISC with a higher fair value of RM6.90/share (vs. RM6.35/share previously), as we rollover our sum-of-parts valuations to end-2015. Our higher fair value stems from our upward revision of market values for petroleum tankers, but is partially offset by lower market value of MMHE based on the current share price. We have also raised our FY14F-FY15F earnings by 6%-7% as we account for improving petroleum charter rates.

Stripping off gains of RM13.5mil from the disposal of its chemical vessels, MISC recorded 3QFY14 core net profit of RM457mil (+36% QoQ, +16% YoY), bringing 9MFY14 core net profits to RM1,280mil (+27% YoY). The results were largely in line within our expectation, accounting for 77% of our previous full-year estimates. Sequentially, 3QFY14 core net profits improved by 36% QoQ, largely due to higher profits from the LNG division from higher earning days and lower drydocking days, and lower losses from the petroleum division due to higher freight rates and increased lightering activities from the Aframax segment.

On a YoY comparison, 9MFY14 earnings growth of 27% came on the back of:- (i) stronger petroleum shipping rates compared to last year; (ii) higher earning days for the LNG segment; (iii) full-year contribution from Gumusut Kakap semi-FPS; and (iv) narrower losses from the chemical segment following the disposals of some loss-making vessels. This was partially offset by a 49% decrease in MMHE earnings.

Management expects petroleum tanker charter rates to seasonally improve going into 4QFY14, as demand would pick up during the winter season. We should therefore see the petroleum division’s losses narrow further for the year. LNG rates remain under pressure due to the huge delivery of new vessels. Although MISC is currently insulated from this due to its long-term charters, note that the Puteri Intan tanker charter with Petronas has expired and will be undergoing refurbishments, while four more charters will expire over the next three years.

Others :

Supermax Corporation : A weak 3QFY14                HOLD

Economic Update : Ringgit depreciates by 1.7% during the first week of November                          (Ringgit )

Economic Update : Advancement in trade surplus to RM9.33bil in September                                     (Trade)

QUICK TAKES

Westports Holdings :  Tariff hike not a done deal               BUY

Magnum :  Launches new game called 4D Jackpot Gold  HOLD

Ta Ann Holdings :  To bank on special ply for Australia to turn around Tasmania   HOLD

Plantation Sector : Newsflow for week 3-7 November    NEUTRAL

NEWS HIGHLIGHTS

Felda Global Ventures Holdings : To ramp up production and exports of palm-based biodiesel

Construction Sector : RM1.5bil jobs for Balingian power plant to be tendered out

Tobacco Sector : JTI and Philip Morris up cigarette prices, too

DISCLAIMER:

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