AmWatch - MISC : Sequential quarters to be stronger driven by sustained petroleum rates BUY, 5 Aug 2015

STOCK FOCUS OF THE DAY

MISC : Sequential quarters to be stronger driven by sustained petroleum rates                 BUY

We upgrade MISC to a BUY with a higher fair value of RM9.40/share (from RM8.30/share previously), based on our sum-of-parts valuation. We raise our FY15F-17F earnings by 15%-16% to account for stronger petroleum shipping rates.

Our upgrade is premised on the recovering petroleum segment, which will continue to underpin the strong performance of the group. Based on Bloomberg data, VLCC and Aframax rates have increased by 77% and 52% YoY as at end-July, respectively. 

The management expects the rates to continue holding up in the near term, with 4Q being seasonally the strongest. This is because demand for the petroleum tankers are expected to continue to grow on the back of continued production by the OPEC and the US, and new oil supply entering the market from Russia and Iran. Simultaneously, supply growth of petroleum vessels remains marginal, as heavy delivery is only expected two years from now.

MISC’s 1HFY15 core net profit of RM1,279.6mil beat expectations, accounting for 62% of our estimates and 59% of consensus. The group also declared an interim dividend of 7.5sen/share.

The group registered a 1HFY15 core net profit growth of 48% YoY, mainly due to the continued strength of the petroleum shipping rates, which saw the segment achieving a pretax profit of ~RM200mil compared to a loss of ~RM62mil in the previous year, as well contributions from FPSO Cendor that was delivered in September 2014. Losses for chemical shipping also narrowed due to the reduced fleet size.

Others :

Teo Seng Capital : 2QFY15: Seasonally weak quarter        BUY

AirAsia : 2Q15 loads stage strong rebound, earnings recovery gaining traction     BUY

Petronas Gas : Steady earnings HOLD

QUICK TAKE

Hartalega : 1QFY16: All on track  BUY

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