Weaker FY18, FY19 earnings expected for MISC


  • Analyst Reports
  • Monday, 09 Jul 2018

KUALA LUMPUR: Kenanga Research expects weaker FY18 and FY19 earnings for MISC BHD on the back of continued losses in its petroleum shipping segment as spot petroleum shipping rates continue to show little signs of recovery due to tonnage oversupply.

As at end-1Q18, 45% of the group’s petroleum shipping portfolio is on spot charters, and as such, any continued weakness in spot rates would be immediately detrimental to earnings of the group, the research house said on Monday.

“Nonetheless, bulk of the group earnings are still sustained by long-term LNG charters.

“The group’s low net-gearing of around 0.2x also allows it to be well-positioned for further investment opportunities,” it said in a note.

It maintained its Outperform call on the counter, noting that it sees buying opportunity upon further share price weakness amidst poor broad market sentiment.

“We believe that the group’s core business is largely unaffected by recent geopolitical developments, while also being a beneficiary of a weakening ringgit,” it said.

The research house maintained its target price of RM7.15.

Last Friday, MISC announced that it has signed a 16-year long-term charter contract with Hess

Exploration and Production Malaysia B.V. (Hess) for the lease of a floating, storage and offloading facility (FSO), known as FSO Mekar Bergading, on a bareboat basis.

The contract value is estimated to be US$441mil, and will commence latest by September 1, 2018.

Based on an assumed exchange rate of RM4.05 per US dollar, the research house said the contract is estimated to provide an additional revenue impact of roughly RM112mil per annum, representing around 1% of FY18-FY19 revenue.

Assuming 50% margins from the contract, this would translate to a positive impact of around 3% to the group’s bottom-line earnings.

“However, do note that FY18 would only see a four-month impact from the contract, given its September commencement date,” it said.

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