AmWatch - MISC : LNG continues to drive earnings Hold, 31 Mar 2015

STOCK FOCUS OF THE DAY

MISC : LNG continues to drive earnings                Hold

We maintain HOLD on MISC with a higher fair value of RM8.30/share (from RM7.90/share previously), based on our SOP valuation.

We raised our fair value to account for the higher market value of the petroleum tankers and the inclusion of contributions from the five newbuild LNG carriers. This is partially offset by the lower market value of its heavy engineering division (MMHE). Consequently, our FY16F-FY17F earnings are also higher by 0.5%-6% due to the newbuilds. The five LNG carriers, which will be on time charters with Petronas for a firm period of 15 years and an option for extension for five years, will be delivered to MISC starting from 2HFY16, at the rate of one vessel per quarter.

The five existing Puteri Class carriers, whose charters have been extended by 10 years by Petronas, is also expected to be delivered to Petronas from September 2015 to September 2017, upon the refurbishment of these vessels. MISC is expected to incur a capex of USD30mil for each refurbishment. In addition, we gather that MISC is currently looking at bidding for third-party contracts in other regions such as Australia and the US.  Overall, LNG charters are now on a relatively shorter contract period, especially for third-party clients. The LNG shipping rates remain under pressure due to the oversupply of vessels.

MISC is confident of the petroleum shipping rates remaining strong in the coming quarters after seeing a protracted period of weakness over the last six years. On a similar note, the oil storage market has also seen an increase in activities as traders take advantage of the current low crude oil prices, lending further support to spot rates. We expect the outlook for its heavy engineering division to remain muted, as orderbook replenishment will remain challenging due to capex cuts by the oil majors. The stock currently trades at an FY15F PE of 18x.

Others :

Alliance Financial Group : A more modest pace of growth ahead                Hold

Astro : Strong quarter amid tough climate            Hold

EconWatch : Vulnerable time for slowdown in China; Malaysia braces softer economic growth ahead

QUICK TAKES

F & N Holdings : No more Red Bull            Hold

Construction :“Big Three” among contenders for PTMP Overweight

NEWS HIGHLIGHTS

Sime Darby : Outlook revised

Tenaga Nasional : Integrax: Game over

Oil and Gas Sector : Pengerang gets Platts’ nod