MISC’s FY16 earnings within analysts’ expectations
KUCHING: MISC Bhd’s (MISC) financial year 2016 (FY16) earnings have come in either slightly above or within analysts’ expectations.
In a filing on Bursa Malaysia, MISC revealed its operating profit of RM2.45 billion was 11.8 per cent lower than the corresponding year’s profit of RM2.78 billion.
MISC’s FY16 core net profit came in at RM1,818.4 million, which was slightly above Affin Hwang Investment Bank Bhd’s (AffinHwang Capital) expectations but below consensus estimates.
“The huge difference between core net profit and headline profit can be attributable to the one-off gain recognised for the acquisition of GKL.
“All segments recorded lower operating profit in tandem with the lower revenue, and also impacted by higher depreciation charges,” the research firm said.
Meanwhile, MISC’s FY16 core net profit of RM2 billion came in within the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) expectation at 97 per cent of estimate but fell below consensus expectations by seven per cent, possibly dragged by unexpected losses in MHB and weaker-than-expected petroleum charter rates.
According to Kenanga Research, MISC is looking for market recovery within petroleum shipping space post 2017 backed by sustainable demand and moderation of fleet growth. The research arm noted that liquefied natural gas (LNG) charter rates are still under pressure due to overcapacity, which is likely to last until 2018.
“The company is still looking for redeployment opportunities for the two LNG vessels (Aman Bintulu and Aman Hakata) which were terminated early of last year,” the research arm said.
The third Seri C Class LNG new-build will be delivered in the second half of 2017 (2H17) and fleet rejuvenation plan (for petroleum and chemical segments) remains on track with delivery of eight new tankers coupled with re-delivery of more expensive in-charters and older tonnages.
It also pointed out that marine and heavy engineering business (MHB) is likely to face order book replenishment risk in view of weak fabrication market.
On estimates, Kenanga Research trimmed FY17E earnings by 12 per cent to RM1.9 billion after accounting for weaker average petroleum charter rates, lower revenue and profit margin from MHB.
“Meanwhile, FY18E earnings of RM2.1 billion, implying earnings growth of 6.6 per cent is introduced assuming foreign exchange of RM4.40 per US dollar, 10 per cent growth in average petroleum charter rates and delivery of two LNG new-builds in 2018,” it said.
Kenanga Research maintained ‘market perform’ post earnings cut with lower target price of RM7.88 per share from RM7.97 per share, pegging to a lower FY17 price to book value (PBV) multiple of 0.9fold (from 0.94-fold), which was - 0.5 standard deviation (SD) to the five-year mean as low charter rates and oversupply in the sector is expected to persist.
“Having said that, MISC’s balance sheet remains healthy with net gearing of 0.2-fold, allowing it to seek opportunistic brown field replacement projects and shallow-water assets requirement in the region,” the research arm observed.
As for AffinHwang Capital, the research firm maintained its earnings estimates, ‘sell’ recommendation and sum of parts (SOP)-derived 12 months (12M) target price of RM6.30 per share.
AffinHwang Capital noted that despite expectation of new deliveries by MISC, charter rate revisions and low fleet utilisation are likely to pressure LNG earnings.
“Petroleum tankers segment should remain subdued on the back of higher newbuild deliveries and idling spot vessels,” the research arm said.
It added that heavy engineering and offshore segments outlook remains challenging despite higher oil prices, as buyers are likely to wait for signs of sustained optimism before committing to oil and gas (O&G) projects.