Stock Name: MISC
Company Name: MISC BHD
Research House: OSK
MISC Bhd
(May 7, RM8.85)
Maintain trading buy at RM8.82 with target price of RM10: MISC's FY10 results fell short of market expectations due to the still-heavy losses in liner and chemical shipping plus higher corporate taxes in 4Q. However, we remain excited over its recent cash call, which suggests a potential acquisition, in addition to a sentiment boost from MMHE's proposed listing. We expect a sharp upswing in its shipping business in FY11, particularly the liner business, and are thus keeping our original estimates and trading buy call. The RM10 fair value implies a valuation of 1.9 times book value and 27 times price-earnings ratio (PER) on FY11 numbers.
Excluding the disposal gain on ships, MISC's 4QFY10 core profit before tax (PBT) of RM279.1 million surged 45.6% quarter-on-quarter (q-o-q). Although this was encouraging, the FY10 core net profit of RM703.3 million was 20% and 27% short of our and market expectations respectively. The poor showing can be attributed to the still-heavy losses in liner and chemical shipping, while the petroleum shipping side posted a minor loss in 4Q.
Also, we suspect the higher corporate tax of RM52.5 million during the quarter was partly due to higher PBT contribution from MMHE.
While the bulk of the group's energy-related business is derived from long-term charters for liquefied natural gas (LNG) carriage that contribute consistent earnings, 4Q was a challenging quarter for the energy shipping division. The loss in chemical shipping widened to US$19.6 million (RM64.29 million) while petroleum shipping slipped into the red with a US$2.8 million loss in 4Q.
Lower spot cargo volume, escalating bunker costs and additional security arrangement fees also led to losses in the petroleum and chemical division. High expectations of the liner division mitigating the substantial loss did not materialise as it still incurred a huge loss of US$81.3 million.
Although the group pulled out of the loss-making Grand Alliance from Jan 1, 2010, the progressive return of chartered-in vessels was only completed at end-4Q. With the shipping industry seemingly bottoming, we see a sharp turnaround for MISC's businesses, especially the liner division, backed by good prospects for its Halal Express Services and much lower chartered-in cost.
MMHE's contribution surged in 4Q on higher revenue recognition. Apart from that, the offshore division also recorded a 31.7% improvement q-o-q but we think this was purely due to a one-off reversal in 3Q.
Despite the small disappointment in FY10 earnings, we are still excited over a potential M&A in the group, taking the cue from its recent cash call. The financial crisis resulted in many shippers needing to be bailed out, which opens up many acquisition opportunities. Also, the proposed listing of MMHE may give rise to positive market sentiment although we see little value creation. Therefore, we reiterate our trading buy call with our target price unchanged at RM10. - OSK Research, May 7
This article appeared in The Edge Financial Daily, May 10, 2010.
Company Name: MISC BHD
Research House: OSK
MISC Bhd
(May 7, RM8.85)
Maintain trading buy at RM8.82 with target price of RM10: MISC's FY10 results fell short of market expectations due to the still-heavy losses in liner and chemical shipping plus higher corporate taxes in 4Q. However, we remain excited over its recent cash call, which suggests a potential acquisition, in addition to a sentiment boost from MMHE's proposed listing. We expect a sharp upswing in its shipping business in FY11, particularly the liner business, and are thus keeping our original estimates and trading buy call. The RM10 fair value implies a valuation of 1.9 times book value and 27 times price-earnings ratio (PER) on FY11 numbers.
Excluding the disposal gain on ships, MISC's 4QFY10 core profit before tax (PBT) of RM279.1 million surged 45.6% quarter-on-quarter (q-o-q). Although this was encouraging, the FY10 core net profit of RM703.3 million was 20% and 27% short of our and market expectations respectively. The poor showing can be attributed to the still-heavy losses in liner and chemical shipping, while the petroleum shipping side posted a minor loss in 4Q.
Also, we suspect the higher corporate tax of RM52.5 million during the quarter was partly due to higher PBT contribution from MMHE.
While the bulk of the group's energy-related business is derived from long-term charters for liquefied natural gas (LNG) carriage that contribute consistent earnings, 4Q was a challenging quarter for the energy shipping division. The loss in chemical shipping widened to US$19.6 million (RM64.29 million) while petroleum shipping slipped into the red with a US$2.8 million loss in 4Q.
Lower spot cargo volume, escalating bunker costs and additional security arrangement fees also led to losses in the petroleum and chemical division. High expectations of the liner division mitigating the substantial loss did not materialise as it still incurred a huge loss of US$81.3 million.
Although the group pulled out of the loss-making Grand Alliance from Jan 1, 2010, the progressive return of chartered-in vessels was only completed at end-4Q. With the shipping industry seemingly bottoming, we see a sharp turnaround for MISC's businesses, especially the liner division, backed by good prospects for its Halal Express Services and much lower chartered-in cost.
MMHE's contribution surged in 4Q on higher revenue recognition. Apart from that, the offshore division also recorded a 31.7% improvement q-o-q but we think this was purely due to a one-off reversal in 3Q.
Despite the small disappointment in FY10 earnings, we are still excited over a potential M&A in the group, taking the cue from its recent cash call. The financial crisis resulted in many shippers needing to be bailed out, which opens up many acquisition opportunities. Also, the proposed listing of MMHE may give rise to positive market sentiment although we see little value creation. Therefore, we reiterate our trading buy call with our target price unchanged at RM10. - OSK Research, May 7
This article appeared in The Edge Financial Daily, May 10, 2010.
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