MISC’s 1HFY17 results in line with expectations, 2HFY17 earnings to be weaker

KUCHING: While MISC Bhd’s ( MISC) first half of the financial year 2017 (1HFY17) results were generally in line with expectations, some analysts expect 2HFY17 earnings to be weaker.

As per a filing on Bursa Malaysia, MISC profit after tax for the sixmonth period ended June 30, 2016 amounted to RM1.25 billion, down from the corresponding period’s profit of RM2.15 billion.

According to MIDF Amanah Investment Bank Bhd’s ( MIDF Research), MISC’s 1HFY17 core profit after tax and minority interest ( PATAMI) of RM1.175 billion met both its and consensus estimates representing 55 per cent of full year FY17 forecasts. Meanwhile, MISC’s 1HFY17 core

net profitprofififit of RM1.38 billion, excluding RM134 million impairment for liquefied natural gas ( LNG) vessel Tenaga Lima and RM17 million liquidation loss from MISC Agencies Japan, was generally within AmInvestment Bank Bhd’s (AmInvestment Bank) expectations.

It accounted for 63 per cent of the research firm’s FY17F earnings and 67 per cent of consensus.

As such, AmInvestment Bank’s MISC’s FY17F-19F earnings were maintained.

“We expect 2HFY17 earnings prospect to be weaker as tanker shipping rates have significantly declined since the beginning of the year amid rising newbuild deliveries, partly cushioned by the arrival of LNG vessel Seri Cempaka recently a n d additional petroleum tankers later this year,” it said.

Al l in, AmInve s tment Bank maintained its ‘ hold’ recommendation on MISC with an unchanged fair value of RM7.35 per share, which is at a 20 per cent discount to the research firm’s sum- of-parts valuation of RM9.19 per share.

On the other hand, MIDF Research, the research arm maintained ‘ neutral’ on MISC with a lower target price of RM7.43 per share.

MIDF Research’s downward revision in target price comes amid a change in valuation methodology, from sum- of-parts to 0.9- fold price- to- net book value (NBV) which was - 1.5 standard deviations below MISC’s five-year average amid the challenging overcapacity environment.

In the research arm’s view, the price-to-NBV method better reflects MISC’s fundamentals with assets consisting mainly of vessels and offshore assets tested for impairment regularly.

“Hence, the carrying value of these assets mirror their fair value, based on second hand prices and current charter rates,” the research arm said.

“Impetus for us to revisit our call on MISC include a change in supply- demand dynamics in the LNG and petroleum transportation market and the securing of sizable projects in the offshore segment.”