MARC expects some pressure on financial performance over the near term as new LNG deliveries will be chartered at prevailing charter rates
KUALA LUMPUR: Liquefied natural gas shipping company MISC Bhd
posted a firmer set of earnings in the financial year of 2016 due to compensation received and reversal of provision of a legal suit, which helped offset lower earnings in the fourth quarter.
MISC said on Friday that earnings for FY ended Dec 31, 2016 rose 4.6% to RM2.58bil from RM2.46bil in FY15. Its revenue, however fell 12% to RM9.60bil from RM10.91bil a year ago
The lower revenue was mainly due to fewer and lower backlog and order intake in heavy engineering; as well as lower revenue from the LNG business arising from the disposal of two vessels and lower rates earned on new contracts in LNG business.
“Meanwhile, consolidation of GKL’s results beginning May 2016, contributed to an increase in offshore revenue for FY16,” it said.
MISC said group operating profit for FY16 of RM2.453bil was 11.8% lower on-year mainly due to lower revenue and higher depreciation by RM450.2mil. This was due to the change in estimated useful life of LNG and petroleum vessels in January 2016.
“However, the group also recognised compensation for early termination of time charter contracts for two LNG vessels and reversal of provision for a legal suit in the year ended Dec 31, 2016,” it said.
FY16's group profit before tax for the year rose 9.6% to RM2.814bil, mainly due to the recognition of gains on acquisition of subsidiaries and disposal of a subsidiary in FY16.
MISC recorded provision for charter hire losses, on container vessels that remained in the group following the group’s exit from the liner business in 2011, lower share of profit from joint ventures and higher finance costs in FF16.
For the fourth quarter ended Dec 31, 2016, fell 29.6% to RM529.83mil from RM752.72mil a year ago. Revenue fell 24% to RM2.52bil from RM3.31bil.
Earnings per share were 11.9 sen compared with 16.9 sen. It declared a dividend of 20 sen a share, lower than the 22.5 sen a year ago.
MISC president and group CEO Yee Yang Chien said the global shipping industry underwent another volatile year in 2016 where businesses across the oil and gas supply chain suffered under very difficult market conditions.
He said amid the challenges in 2016, MISC managed to report commendable financial and operational performances.
“We expect no less than another challenging year ahead. However, we still see growth opportunities and we believe we have the resources to pursue these possibilities.
“Our priorities remain unchanged and the future growth of MISC will be guided by MISC2020: our five-year business strategy towards attaining a sustainable level of secured profits by FY2020,” he said.
Yee said the petroleum shipping segment’s performance will come under pressure in 2017, with high fleet growth and potentially lower tonne mile demand as a result of reduced OPEC oil production post January 2017’s quota restriction.
However, the impact from the OPEC cut may be offset by higher production elsewhere and shipowners are hopeful that the enforcement of the ballast water treatment systems convention from September 2017 will reduce vessel supply through accelerated vessel scrapping.
On the LNG front, Yee said the global LNG supply was expected to increase by 14% with the completion of new liquefaction plants in 2017.
“Despite the increase in gas supply, demand for LNG shipping is expected to remain sluggish as the tonnage oversupply situation will continue to persist as a result of higher vessel deliveries and lower project absorption.
“This however will not impact the steady performance of the Group’s LNG business segment as most of the vessels are employed under long term charters,” he added.
On the outlook for the upstream oil and gas industry, he said it had improved with the gradual recovery in oil prices, setting the stage for gradual recovery in global offshore exploration and production investment, especially for developments within the Atlantic Basin.
However, he cautioned that despite the improved sentiment in the market, the impact may not be seen to flow through to the heavy engineering segment immediately.
He said the heavy engineering segment will continue with to focus on cost management and resource optimisation to reduce its operating cost in line with the outlook of the industry.
“In addition, the group intensifies its effort to replenish its orderbook, namely from onshore segment, hook-up & commissioning and facilities improvement.
“The group’s offshore business segment’s stable financial performance will continue to be supported by long term contracts,” he added.
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