Hot Stock MISC's shares near eight-month low as analysts see more earnings risks

by **Cals** Tue 10 May 2016, 10:18

Hot Stock

[size=28]MISC's shares near eight-month low as analysts see more earnings risks

By Gho Chee Yuan / theedgemarkets.com | May 9, 2016 : 11:03 AM MYT

KUALA LUMPUR (May 9): Shares in MISC Bhd fell to nearly eight months' low of RM7.86 shortly after opening bell today as analysts are bearish on the group's prospects ahead.

This is despite MISC posted a 17.4% in net profit in the first quarter ended March 31, 2016 (1QFY16) to RM571 million from RM486.31 million a year earlier, underpinned by a six-fold jump in the profit of its petroleum segment.

Revenue for the quarter, however, fell 4% to RM2.39 billion, from RM2.49 billion a year ago.

Notwithstanding that, analysts shared MISC's petroleum and liquified natural gas (LNG) segment to be softer going forward as rates are coming under pressure due to overcapacity.

In a note to clients today, Kenanga Research has slashed MISC's FY16 and FY17 earnings forecast by 12% and 11% to RM2.9 billion and RM3.2 billion repsectively.

The decreased was premised on the net negative effect, which include the 50% stake in Gumusut-Kakap and Paramount tankers, as well as weaker petroleum and LNG segment as freight rates are coming under pressure due to the end of winter and as new vessels delivery enters the market with supply expected to outweigh demand.

"Our TP (target price) is lowered to RM9.64 from RM10.64 based on a lower FY16 book value of equity per share (BVPS) of RM8.38 from RM8.49 after lowering our earnings estimates, and on a lower FY16 price to book value (PBV) multiple of 1.15 times," the research firm said.

Nevertheless, Kenanga Research said MISC still warrants a convincing Outperform call and is commanding close to 18% total returns at current levels.

"Additionally, we believe MISC deserves to trade above its mean standard deviation as we favour MISC's strong balance sheet as it is able to pounce on any opportunity to acquire value accretive distressed assets, particularly in the oil and gas sector," it added.

Meanwhile, CIMB Research pointed out Petronas will terminate the Mobile Offshore Production Unit 1 (MOPU 1) and MOPU2 from mid-2016 as the marginal fields on which they are deployed have dried up, even though the contracts run to 2020 or 2021.

"MISC will be compensated US$26 million for the premature termination, which falls short against finance lease receivable of US$86 million, which is a negative surprise," the firm said in a report today.

According to the firm, the contract terminations are negative as there will no longer be any earnings contributions from the Tenaga Nasional Bhd (TNB) and Aman-class vessels and the MOPUs.

"(Further), Petronas' offer of compensation is short of what is actually due to MISC. Total operated Yemen LNG has promised to pay MISC in 2017 what was due to be paid in 2016, but there is the possibility of an extended suspension," it added.

CIMB Research expects MISC's share price to see more pressure on anticipation of the tanker rate downturn from 4Q16.

"We expect peak FY15 return of equiy (ROE) of 9.5% to fall to 6.6% in FY18. This is why we have raised the sum-of-parts (SOP) discount from 10% to 20%, to derive our target price of RM7.90.

"In a sell-down, MISC's share price could over-react and fall to a 30% discount to SOP (implying RM6.90), where it traded in FY12 when it achieved an ROE of only 4%," it added.

CIMB reduced MISC to "Hold" from " Add" while target price cuts to RM7.90 from RM9.76 previously.

At 10.33am, the stock was traded at RM7.81, down 53 sen or 6.35% after 1.09 million shares changed hands. The current price gives it a market value of RM35.35 billion.

Year-to-date, it had fallen RM1.33 or 14.5%, under-performing FBMKLCI's 3.04% fall.
[/size]