KUCHING: MISC Bhd’s (MISC) financial year 2015 (FY15) results came in above expectations, boosted by strong growth in its petroleum segment.
However, analysts believe that MISC’s liquified natural gas (LNG) segment will not likely see a significant recovery in the near future due to lacklustre demand on LNG and overcapacity of vessels.
The research arm of Affin Hwang Investment Bank Bhd (Affin Hwang) said that in the fourth quarter of 2015 (4Q15), MISC reported a significant jump in core net profit to RM1,1345 million (a 92 per cent increase year-on-year) on the back of a 45 per cent increase in revenue and 7.1 percentage points increase in earnings before interest and tax (EBIT) margin.
“The strong growth in year-on-year (y-o-y) revenue and core net profit growth in 4Q15 was primarily driven by a higher contribution from MISC’s petroleum segment on improved freight rates (VLCC spot rates up 84 per cent y-o-y; Suezmax spot rates up 30 per cent y-o-y).
“However, the impact was partially negated by fall in contribution from the LNG business on lower earnings days,” it pointed out.
However, Affin Hwang believe the long-term LNG supply contracts would continue to provide earnings stability.
Meanwhile, Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a separate report, said MISC remained optimistic of the sustainability of strong charter rates in petroleum division in view of the stable oil production, limited fleet growth and lower demolition activities that indicate buoyant
demand.
“On the flipside, LNG rates are not expected to recover significantly in the near future in view of lacklustre demand on LNG and overcapacity of vessels,” it said.
The research arm of AmInvestment Bank Bhd (AmInvest) also noted that MISC’s LNG segment, which contributed 55 per cent of its 4QFY15 pre-tax profit, would likely remain weak until 2018 as spot rates are still halved y-o-y, with the global addition of 147 new vessels this year.
However, with the charter renewal of five Puteri class carriers and five new-build contracts, Kenanga Research believe that the earnings growth momentum in LNG can be sustained.
“The first two new LNG vessels are expected to be delivered in the second half of 2016 (2H16) and we expect the new delivery to drive earnings growth in FY16,” it added.
AmInvest also noted that the slowdown in MISC’s LNG segment could be partly mitigated by lower operational costs, as bunker costs, which account for 16 per cent of FY15 operating expenses, have fallen by 17 per cent quarter-on-quarter (q-o-q) and 47 per cent y-o-y to US$198 per tonne in December 2015, and are expected to remain low for the near term.
All in, the research team maintained a ‘buy’ rating on the stock. It said, the stock now trades at an attractive FY16F enterprise value per EBITDA of 8.5-folds, below its three-year average of 10.5-folds.
Meanwhile, Kenanga Research upgraded its FY16E net profit by 13 per cent after imputing stronger petroleum charter rates.
“We introduce FY17 estimated earnings with net profit growth of seven per cent. We also raised our dividend per share to 20 sen for both FY16E and FY17E after assuming higher pay-out ratio of circa 25 per cent from circa 13 per cent,” it said, adding that it maintained its ‘outperform’ rating on the stock.
Affin Hwang made no changes to its forecast and maintained its ‘hold’ call on the stock.