Stock Name: MISC
Company Name: MISC BHD
Research House: MAYBANK
MISC Bhd
(May 18, RM8.73)
Maintain buy at RM8.73 with target price of RM9.05: We are positive on the acquisition, operationally and financially. The move to buy a 50% stake in VTTI from Vitol Holding BV for US$735 million (RM2.35 billion) by November 2010 is potentially earnings accretive and has strong cash generative appeal, similar to Dialog-Petronas JV Kertih Terminal Facility in Terengganu.
Furthermore, MISC will gain an instant footprint to the tank terminal business worldwide with an established partner. Buy with an unchanged discounted cash flow-based (DCF) RM9.05 target price.
This is a win-win deal for both. The purchase fits well into MISC's operations. VTTI, a top 10 independent tank terminal operator worldwide (by size) offers: (i) immediate access to tank farm terminal assets, strategically located at the crossroads of major product and energy shipping lanes of the world, and (ii) the opportunity to leverage, cross-sell and complement its petroleum and chemical shipping operations. Vitol, in return, gets to unlock value and ride on Petronas' global operations and franchise.
Tank terminal operations are a crucial part of the oil and product trading industry. It is an asset-light, low-capex and high-margin business, which generally delivers a steady income and is largely immune to the volatile oil price environment. This underlying strength provides a good fit to MISC's overall business segments as petroleum, chemical and liner logistics shipping earnings are cyclical in nature.
VTTI's financials were unavailable, which handicapped our earnings assessment. Based on preliminary valuation work on its peers (Odfjell's historical operating and financial statistics), VTTI could generate an annual revenue of US$330 million-US$450 million (based on US$55-US$75/cbm on six million cbm of capacity), US$132 million-US$225 million in Ebitda (40%-50% margin) and US$40 million-US$80 million in profits (12%-18% margin).
We estimate MISC to equity account RM13 million-RM81 million to group's net profit, based on its 50% stake in VTTI and after netting off the loss of interest income (US$16 million @ 2.2% FD rate). Overall impact to its bottom line is a potential 1%-2% rise in FY11's net profit, based on our assessment of its peers.
MISC should easily fund this acquisition with the proceeds raised from the recent rights issue exercise (RM5.2 billion). Its net gearing would only rise to 31.4% (+10.6 percentage point), manageable in our view.
With a combined capacity of six million cbm, VTTI is arguably one of the largest independent tank terminal operators in the world with a network of terminals spreading across 11 countries. Based on its expansion programme, VTTI is expected to add 25% (1.5 million cbm) to its tank terminal capacity by 2012.
We are not ruling out a potential listing of VTTI in the future, for it seems to qualify for a direct listing offering a market capitalisation of RM2 billion-RM5 billion based on 15 times-20 times PE multiples. ' Maybank IB Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2010.
Company Name: MISC BHD
Research House: MAYBANK
MISC Bhd
(May 18, RM8.73)
Maintain buy at RM8.73 with target price of RM9.05: We are positive on the acquisition, operationally and financially. The move to buy a 50% stake in VTTI from Vitol Holding BV for US$735 million (RM2.35 billion) by November 2010 is potentially earnings accretive and has strong cash generative appeal, similar to Dialog-Petronas JV Kertih Terminal Facility in Terengganu.
Furthermore, MISC will gain an instant footprint to the tank terminal business worldwide with an established partner. Buy with an unchanged discounted cash flow-based (DCF) RM9.05 target price.
This is a win-win deal for both. The purchase fits well into MISC's operations. VTTI, a top 10 independent tank terminal operator worldwide (by size) offers: (i) immediate access to tank farm terminal assets, strategically located at the crossroads of major product and energy shipping lanes of the world, and (ii) the opportunity to leverage, cross-sell and complement its petroleum and chemical shipping operations. Vitol, in return, gets to unlock value and ride on Petronas' global operations and franchise.
Tank terminal operations are a crucial part of the oil and product trading industry. It is an asset-light, low-capex and high-margin business, which generally delivers a steady income and is largely immune to the volatile oil price environment. This underlying strength provides a good fit to MISC's overall business segments as petroleum, chemical and liner logistics shipping earnings are cyclical in nature.
VTTI's financials were unavailable, which handicapped our earnings assessment. Based on preliminary valuation work on its peers (Odfjell's historical operating and financial statistics), VTTI could generate an annual revenue of US$330 million-US$450 million (based on US$55-US$75/cbm on six million cbm of capacity), US$132 million-US$225 million in Ebitda (40%-50% margin) and US$40 million-US$80 million in profits (12%-18% margin).
We estimate MISC to equity account RM13 million-RM81 million to group's net profit, based on its 50% stake in VTTI and after netting off the loss of interest income (US$16 million @ 2.2% FD rate). Overall impact to its bottom line is a potential 1%-2% rise in FY11's net profit, based on our assessment of its peers.
MISC should easily fund this acquisition with the proceeds raised from the recent rights issue exercise (RM5.2 billion). Its net gearing would only rise to 31.4% (+10.6 percentage point), manageable in our view.
With a combined capacity of six million cbm, VTTI is arguably one of the largest independent tank terminal operators in the world with a network of terminals spreading across 11 countries. Based on its expansion programme, VTTI is expected to add 25% (1.5 million cbm) to its tank terminal capacity by 2012.
We are not ruling out a potential listing of VTTI in the future, for it seems to qualify for a direct listing offering a market capitalisation of RM2 billion-RM5 billion based on 15 times-20 times PE multiples. ' Maybank IB Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2010.
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