AmInvest maintains 'buy' on MISC over Paramount Tanker acquisition, an attractive purchase

by **Cals** Mon 25 Apr 2016, 18:40

AmInvest maintains 'buy' on MISC over Paramount Tanker acquisition, an attractive purchase

By Sangeetha Amarthalingam / theedgemarkets.com | April 25, 2016 : 11:28 AM MYT

KUALA LUMPUR (April 25): AmInvestment Bank (AmInvest) has reiterated its "buy" call on MISC Bhd following the group's share sale and purchase agreement with Golden Energy Tankers Holdings Corp to acquire the remaining 50% equity stake in Paramount Tankers Corp (PTC) for US$56.45 million (about RM221 million).

AmInvest analyst Alex Goh said the bank's estimates found the acquisition, which was 36% below market valuations, an attractive purchase assuming PTC, which owns and operates six Aframax vessels, has a gross gearing similar to MISC's 0.2 times level in financial year 2015 (FY15).

The acquisition, which is being carried out by MISC's wholly-owned unit AET Inc Ltd, is expected to be completed mid-May this year.

"Aframax spot charter tanker rates have dropped by 28% from December 2015 to US$35,000 a day in March this year due to weak global demand and high utilisation of storage facilities that slowed down global movement of crude oil.

"Management remains optimistic that tanker demand will recover given the low numbers of tankers currently under construction coupled with high trading activities driven by low oil prices, inventory buildups and ramp-up in refinery production," Goh said.

He added that operational costs are expected to moderate further as bunker costs, which account for 16% of FY15 operating expenses, fell by 10% quarter-on-quarter and 45% year-on-year to US$178 per tonne in March 2016.

It is expected to remain low for the near term, he said, adding that it now trades at an attractive FY16 forecast enterprise value to earnings before interest tax, depreciation and amortisation (EV/EBITDA) of 10 times below its two-year average of 11.1 times.

"We reiterate our 'buy' recommendation with an unchanged sum-of-parts derived fair value of RM10.30 per share which implies an FY16 EV/EBITDA of 12 times — one standard deviation above its three-year average.

"Our FY16F to FY18F earnings are maintained as the acquisition of additional stakes in six vessels will not a significant impact," he said.

At 10.27am, MISC dipped one sen or 0.11% to RM8.85 on thin trade of 2,700 shares for a market capitalisation of RM39.5 billion.