MISC posts weaker earnings
Quarterly profits down on lacklustre petroleum tanker market
KUALA LUMPUR: MISC Bhd‘s reported a poorer set of financial results for the first quarter ended March 31 due to weaker petroleum tanker market while its heavy engineering business was affected by the lack of new contracts.
In a filing with Bursa Malaysia, the company announced that its Q1 earnings fell 54% to RM310.60mil from RM676.20mil a year ago.
Revenue fell 32.3% to RM2.02bil from RM2.98bil. Group operating profit fell 43.7% to RM383.4mil.
Earnings per share were seven sen compared with 15.10 sen. However, it declared an interim dividend of seven sen a share, similar to a year ago.
MISC said liquified natural gas (LNG) recorded revenue of RM584.6mil, down 21.7% from RM746.5mil, mainly due to the reduced number of operating vessels and a lower charter rate for the contract renewal of an LNG carrier in October 2017.
Operating profit of RM275.2mil was lower by RM54.8mil from RM330mil a year ago. This was due to the recognition of compensation for an early termination of the time charter contract for one of the vessels a year ago and also lower revenue in current quarter.
However, the reduction in profit was partially negated as by lower vessel operating costs in the current quarter.
As for its petroleum business, its revenue fell 24% to RM976.3mil mainly due to the lower freight rates in the current quarter. Petroleum segment recorded an operating loss of RM39.2mil compared with the profit of RM82.6mil a year ago, mainly due to the lower revenue.
MISC said its offshore revenue fell 59.9% to RM294.9mil as there was a recognition of one time gain for Gumusut-Kakap Semi-Floating Production System (L) Ltd’s (GKL) variation works following the favourable decision of the adjudication in February 2017. Operating profit fell to RM149.9mil from RM302.1mil mainly from a lower revenue in GKL.
The revenue for heavy engineering fell to RM179.9mil from RM235.9mil mainly due to the completion of projects while the new secured projects were still in their early stages. Its operating losses widened to RM25.5mil from RM15.6mil a year ago mainly due to the lower revenue.
MISC said the petroleum tanker earnings were considerably weaker than previous years, despite the winter season.
It said the market was depressed by lower tonnage demand on the back of Opec-led production cuts as well as tonnage oversupply.
“The petroleum shipping segment is expected to face a challenging 2018 and the performance for the year is expected to be weaker than 2017.
“On a positive note, vessels scrapped have been on the rise in Q1, 2018 as the number of oil tanker tonnage recycled outnumbered new vessel delivered,” it said.
MISC expected the trend in scrapping to continue, supported by good steel prices and a weak earnings environment. This supports a recovery in freight rates in the medium to longer term.
On petroleum shipping, MISC said the LNG shipping market was expected to face a weak spot market during the year as a result of tonnage overcapacity, exacerbated by a large number of long-term charter expiries.
However, it explained that most of the group’s LNG carriers were on secured long term charters. Two new LNG carriers join the fleet in the first half of 2018 on long-term charters, providing growth to operating profits.
“The group believes a more stable and higher oil price environment in 2018 will pave the way for a gradual recovery in global offshore oil and gas investments.
“The expected recovery in the number of projects approved represent opportunities for the group, both locally and internationally, including opportunities in West Africa, the Middle East and the Americas,” it said.
However, MISC’s heavy engineering segment continues to suffer from scarcity of new contracts despite signs of improving offshore investment and performance for 2018 is expected to remain under pressure.