MISC under pressure on AET outlook

KUALA LUMPUR: Shares of MISC Bhd fell to a low of of RM7.10 on Thursday after it was downgraded by anaysts on concerns about weaker earnings outlook on concerns about the AET petroleum tanker business.

At 11.30am, MISC was down 33 sen to RM7.17. There were 1.02 million shares done.

The FBM KLCI was down 4.17 points or 0.25% to 1,655.43. Turnover was 593.43 million shares valued at RM544.01mil. The broader market was weaker with 387 losers versus 182 gainers while 333 counters were unchanged.

CIMB Equities Research has downgraded MISC Bhd from Hold to reduce as future quarterly earnings could disappoint and this saw it reducing the target price from RM6.92 to RM6.42.

The research house said MISC delivered 9M16 core earnings of US$340mil that were 37% lower on-year and about 25% below our forecast, due to an unexpected 3Q loss at AET petroleum tanker.

“We cut our core EPS estimates by 25% for all forecast years, after reducing forward AET earnings significantly, and also adjusting down LNG and offshore numbers.

“Our target price is reduced to RM6.42, still based on a 25% discount to sum-of-parts to factor in the tough medium-term outlook for MISC,” it said.

However, CIMB Research said the outlook for LNG earnings may improve sequentially in 4Q16, as the Puteri Zamrud recommenced employment (albeit at lower charter rates) from October. 

Also, MISC took delivery of its first LNG newbuilding, the Seri Camellia, on Sept 30. 

“The outlook for AET should also improve in 4Q, as it is the traditional winter peak season for oil imports and weather-related factors could cause congestion which is always good for tanker rates.

 “We expect the outlook for FY17F and FY18F to be uninspiring, due principally to the well-anticipated tanker rate downturn. While there are opportunities to secure more offshore contracts, competition could be fierce and IRRs low,” CIMB Research said.