MISC reported another quarter of losses but as management
has indicated that the worst has come
to pass, the earnings outlook
for the remainder of the year could improve significantly. More
importantly, we think MISC’s share price has been unjustifiably bashed down.
Currently trading at 0.8x P/BV, the stock offers a cheap LNG play (its LNG
division is valued at RM5.10), with
all of
its other businesses being essentially free. Maintain BUY, at a lower FV
of RM6.45, premised on 1.3x P/BV.
Still swimming in losses but margins improve. MISC continued
to be mired in losses, booking a net loss of USD152m in 1QFY12. Stripping out
the exceptional items relating to asset impairments and provisions from the
chemical and liner side amounting to USD139.6m,
the core net loss stood at USD12.4m (q-o-q: -2%, y-o-y: NM) on the back of revenue of
USD785.5m (q-o-q: -14%,
y-o-y: -18%). The weaker revenue was attributed to the
liner business from which MISC is gradually exiting, which saw revenue sink 53% q-o-q and 65% y-o-y. By segment, the
petroleum, liner and the chemical divisions still racked up losses due to
supply-demand imbalance as well as moderating economic growth
in China. We deem the
overall results short of our and consensus expectations,
although the group’s top-line was in line with our estimates, coming in at 22%
of our full-year forecast. On a more
positive note, since its gradual
exit from the loss-making liner division, MISC’s core operating
margins have improved, with its EBITDA margin nudging up by 2.4ppts q-o-q to 15.27%,
although this was still lower than that
in the corresponding quarter last year.
Highlights from analyst briefing. In the immediate
term, management believes that it has put the worst quarter behind as it
expects losses from the liner division to contract significantly. It also sees
higher earnings contribution for the rest of the year from: (i) the commencement
of its 2 FSUs for the re-gasification plant in Melaka in September, (ii) the delivery of 3 Suezmax and 2 shuttle
tankers, (iii) a charter for a chemical tanker in 3Q (on a time charter basis,
which is already in the money), and (iv) a sharp reduction in losses from the
liner segment. As far as medium- to longer-term developments go, on top of the
contribution from the Gemusut Kakap FPS by 2013, management is assessing the
possibility of acquiring a stake in a new LNG train capacity expansion project
in Bintulu with Petronas, from which the returns are far more attractive
than that from LNG. An announcement on
this venture is expected to be made sometime this year. Elsewhere, to cater
to the higher volume from Bintulu come 2016, MISC would need to buy at least 3 more LNG tankers. As highlighted
earlier in the past few quarters, management feels that
it is highly unlikely that demand in the petroleum segment would recover by 2013 as
new tonnage capacity enters the market.
It expects the chemical segment to fare better as the oversupply in the
shipping subsector is the least acute.
Source: OSK
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