MISC posts PBT of RM486m in 1Q after four years of losses

by **Cals** Wed 14 May 2014, 17:35

Business & Markets 2014

Written by MIDF Research

Wednesday, 14 May 2014 10:20

MISC Bhd
(May 12, RM6.45)
Maintain neutral with target price of RM6.21: MISC’s core net profit for the first quarter ended March 31 of financial year 2014 (1QFY14) came to RM486 million (+50.7% year-on-year [y-o-y], -3.0% quarter-on-quarter [q-o-q]). The results accounted for 28.0% and 28.7% of our and consensus’ full-year forecasts respectively.

The higher core net profit was contributed by: (i) a turnaround in its petroleum tanker business; (ii) rise in liquefied natural gas (LNG) profit by 15% y-o-y; and (iii) higher earnings from its offshore division (36% y-o-y).

Nevertheless, higher losses from its chemical tanker segment (-28% y-o-y) and the underperformance in its heavy engineering segment (-41% y-o-y) partially offset the abovementioned positive contributions to MISC’s profit.

The overall 1QFY14 top line dipped 3.7% y-o-y to RM2.3 billion as a result of a smaller operating fleet size and the decline in revenue recognised by its heavy engineering segment.

Compared to 1QFY13, MISC’s petroleum and chemical tanker segments’ fleet size declined by six and seven tankers respectively. Malaysia Marine and Heavy Engineering Holdings Bhd, a subsidiary of MISC, encountered intense competition in replenishing its order book.

MISC’s 1QFY14 LNG profit rose 14.7% due to an increase in the number of chartering days. Nonetheless, the bulk deliveries of LNG vessels in FY14 and FY15 and possible resumption in the operations of Japanese nuclear power reactors are likely to put a dent in LNG freight rates in the future. Hence, we believe that renewal rates moving forward will be substantially lower than before.

In the quarter under review, MISC posted a profit before tax (PBT) of US$11 million (RM35.6 million) after four years of consecutive losses. The spot very large crude carrier (VLCC) rate in 1QFY14 climbed sharply, hitting US$30,000 to US$40,000 per day, its highest levels since 3QFY08.

The recent sharp surge in freight rate was mainly boosted by a combination of factors such as the harsh winter in the US and China’s crude stockpiling which stood at a record high of 6.6 million barrels per day. — MIDF Research, May 12

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This article first appeared in The Edge Financial Daily, on May 14, 2014.
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