MISC (3816) : MISC Bhd - On the crest of a wave in 4Q14
Target RM8.22 (Stock Rating: ADD)
At 73% of our and 71% of consensus’ full-year expectations, MISC's 9M14 core earnings were in line. Petroleum and chemical tanker losses look poised to narrow further in 4Q14 as we head into a seasonally-strong quarter with the benefit of lower bunker prices. FPSO Cendor will also contribute to profits beginning 4Q14. We make minor changes to our EPS estimates and keep our SOP-based target price. We maintain Add, with rerating catalysts that include improving relations with Petronas and brighter petroleum tanker prospects.
Highlights of 3Q14
MISC's 3Q14 core earnings grew 54% yoy, thanks to strong performances in the LNG and petroleum tanker divisions. LNG PBT improved 14% yoy amid higher LNG hire rates and fewer dry docking days, while petroleum tanker losses narrowed 77% yoy following significantly better rates and a smaller fleet. VTTI, MISC's tank terminal JV, went into the red due to US$25m in one-off costs related to VTTI Energy Partner's IPO on the NYSE. Excluding these exceptional costs, of which US$16m-17m arose from refinancing charges, VTTI would have made a profit. On the chemical tanker front, losses continued to narrow despite weaker rates, thanks to MISC's reduced chemical tanker fleet size. MMHE continued to slide lower, with PBT falling 47% yoy due to project delays.
Petroleum and chemical tankers going strong into 4Q14
MISC's petroleum tanker segment looks poised to do well in 4Q14, as 4Q is seasonally a strong quarter due to winter energy demand in the Northern Hemisphere. In addition, bunker prices have fallen in tandem with crude oil prices, which will help improve TCE earnings for MISC's aframaxes that are on voyage charter. The chemical tanker division, which quotes clients on a US$/tonne basis, will also benefit from lower bunker costs. Coupled with the plan to dispose all of its owned chemical tankers by end-2014, losses from this segment should narrow substantially.
Strengthening ties with Petronas
As highlighted in our recent report, the potential sale of Petronas's LNG vessel newbuilding orders to MISC will assist MISC in partially mitigating its LNG earnings decline. MISC has been left in the cold since Petronas's decision to procure its own LNG ships, so a family reconciliation will also play a big role in restoring investor confidence in the two parties' father-son relationship.
Source: CIMB Daybreak - 10 November 2014
Target RM8.22 (Stock Rating: ADD)
At 73% of our and 71% of consensus’ full-year expectations, MISC's 9M14 core earnings were in line. Petroleum and chemical tanker losses look poised to narrow further in 4Q14 as we head into a seasonally-strong quarter with the benefit of lower bunker prices. FPSO Cendor will also contribute to profits beginning 4Q14. We make minor changes to our EPS estimates and keep our SOP-based target price. We maintain Add, with rerating catalysts that include improving relations with Petronas and brighter petroleum tanker prospects.
Highlights of 3Q14
MISC's 3Q14 core earnings grew 54% yoy, thanks to strong performances in the LNG and petroleum tanker divisions. LNG PBT improved 14% yoy amid higher LNG hire rates and fewer dry docking days, while petroleum tanker losses narrowed 77% yoy following significantly better rates and a smaller fleet. VTTI, MISC's tank terminal JV, went into the red due to US$25m in one-off costs related to VTTI Energy Partner's IPO on the NYSE. Excluding these exceptional costs, of which US$16m-17m arose from refinancing charges, VTTI would have made a profit. On the chemical tanker front, losses continued to narrow despite weaker rates, thanks to MISC's reduced chemical tanker fleet size. MMHE continued to slide lower, with PBT falling 47% yoy due to project delays.
Petroleum and chemical tankers going strong into 4Q14
MISC's petroleum tanker segment looks poised to do well in 4Q14, as 4Q is seasonally a strong quarter due to winter energy demand in the Northern Hemisphere. In addition, bunker prices have fallen in tandem with crude oil prices, which will help improve TCE earnings for MISC's aframaxes that are on voyage charter. The chemical tanker division, which quotes clients on a US$/tonne basis, will also benefit from lower bunker costs. Coupled with the plan to dispose all of its owned chemical tankers by end-2014, losses from this segment should narrow substantially.
Strengthening ties with Petronas
As highlighted in our recent report, the potential sale of Petronas's LNG vessel newbuilding orders to MISC will assist MISC in partially mitigating its LNG earnings decline. MISC has been left in the cold since Petronas's decision to procure its own LNG ships, so a family reconciliation will also play a big role in restoring investor confidence in the two parties' father-son relationship.
Source: CIMB Daybreak - 10 November 2014
