MISC sails through the storm

by **Cals** Sun 13 Sep 2015, 19:30

MISC sails through the storm

Saturday, 12 September 2015
By: INTAN FARHANA ZAINUL

Shipping giant garners 12 ‘buy’ calls as it benefits from the strong US dollar
THE local oil and gas sector may be going through one of its toughest times and investors’ appetite for companies exposed to the sector may be at its lowest ebb in recent times.
But this does not necessarily mean all companies in this sector are in trouble.
Shipping giant MISC Bhd, an associate company of national oil company Petroliam Nasional Bhd (Petronas), seems to be sailing smoothly through the current storm.
The company is doing so well that going by Bloomberg data, 12 analysts have a “buy” call on its shares with another three calling it a “hold.” No one is recommending a “sell.”
Analysts reckon MISC operates in the sweet spot of being a beneficiary of the stronger US dollar to ringgit exchange rate as well as low crude oil prices.
This is because more than 90% of the MISC’s revenue is denominated in US dollars, whereas its operational costs are mostly in ringgit.
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And while the collapse in crude oil prices may have crushed many upstream players, it’s a boon for some businesses in the downstream sector such as refiners and storage providers.
The main reason for a company like MISC to be in a sweet spot now is that the low oil price environment has resulted in certain players wanting to store cheap oil and sell it when the price eventually goes up.
This in turn has led to an increase of use of oil storage tankers, which is the main business of MISC.
TA Securities sees that MISC is expected to benefit as the low crude oil price environment continues through the remainder of this year and into 2016, and that this would translate into stronger earnings for MISC due to higher charter rates for petroleum vessels.
According to the US-based Energy Information Administration, Brent and WTI prices are expected to fall by 45% and global supply to rise 2.5% in 2015.
According to analysts, crude tanker time-charter rates may rise up to 63% in 2015, due to rising tonnage demand for long-haul trades and restocking activity.
While shares in many of the local O&G service providers have been battered following the slump in oil prices, MISC is trading 19% higher year-to-date.
MISC closed six sen higher yesterday at RM8.56 with a market capitalisation of RM38.2bil. At the current price, the counter is trading at undemanding price-to-earnings ratio (P/E) of 15.66 times its financial year 2015 earnings.
BIMB Research in an initiation coverage report expects MISC to register a steady earnings of RM2.36bil or 7% year-on-year increase for its financial year ending Dec 31, 2015 (FY15).
The research house forecasts MISC to sustain its earnings growth of between 7% and 8% for FY16 and FY17.
This is on the back of potential increases in petroleum charter rates, which would more than offset lower rates for other segments of MISC.
“We kick start our coverage on MISC with a sum of part valuation of RM9.00 premised on FY16 figures with the upside potential of 7.1% on the back of stronger petroleum charter rates and favourable foreign currency gains amid the strengthening in the US dollar,” BIMB says. It has a “hold” recommendation on MISC.
MISC has 125 vessels covering not only liquefied natural gas (LNG), but also petroleum and chemical shipping.
Healthier balance sheet
MISC has been aggressively streamlining its assets and investments over the past one-year, which resulted in a significant reduction in its debt, thereby strengthening the group’s balance sheet.
In 2011, MISC slipped into the red due to what is said to be the worst shipping downturn ever in the last three to four years.
The company rebounded after returning to the black in FY2012 and had rewarded shareholders with dividends last year.
The group improved its balance sheet significantly in 2014 after reducing its net-debt-to-equity ratio to 0.14 times from 0.5 times in 2011.
In recent years, MISC has been narrowing its business operations to be an energy-focused shipping player from its heyday as a diversified shipping company.
It has been gradually divesting its non-core businesses, starting with the loss-making container shipping operation.
It also sold its Gumusut Kakap floating production system for US$2.04bil (RM6.26bil)in 2012.
The latest sale was the disposal its 50% stake in bulk liquid storage terminal operator VTTI to Netherlands-based VIP Terminals Finance B.V. for $830mil or RM3.46bil cash last month.
VTTI was a joint venture between MISC and Vitol, of which VIP Terminals Finance is a subsidiary. MISC said that the divestment would enable the company “to unlock the value” of its investment in VTTI and take advantage of future opportunities within its core business of energy and petroleum-related shipping.