MISC : Not looking to divest AET, 21 Apr 2015

MISC

The Edge Financial Daily reported today that international shipping publication Tradewinds has speculated that Canada-based Teekay Tankers has conducted discussions with MISC about the acquisition of the latter’s petroleum shipping division, AET Tankers Ltd.

Following our checks, MISC’s management confirmed with us that the news report is inaccurate and the group is not holding any discussions to divest AET Tankers.To recap, the group 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. We understand that delivery of newbuilds has peaked last year, while demand for crude shipping has been increasing due to the low oil price level.

The petroleum shipping segment has been reporting losses since 2011, but saw its FY14 loss before tax narrowed to US$23.7mil from US$152.4mil the previous year. We currently value MISC’s petroleum shipping division at RM9.6bil based on the current market value of its tanker, constituting 22% of our total sum-of-parts valuation.

The group will continue to be driven by its LNG segment which generates stable profits due to the long-term charter of its vessels. This is further bolstered by the recent addition of five new LNG carriers into its fleet, as well the charter renewal of its five Puteri Class carriers. However, 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. MMHE is also facing intense competition from the international fabrication yards. We maintain HOLD with a fair value of RM8.30/share.

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