MISC earnings fall 42.3% to RM321.2m

by MARK RAO / pic by ISMAIL CHE RUS

MISC Bhd expects charter rates to remain pressured on overcapacity concerns after the company posted a weaker second quarter ended June 30, 2018 (2Q18).

The maritime logistics service provider’s net profit slump 42.3% year-on-year (YoY) to RM321.2 million, or 7.2 sen earnings per share (EPS), on lower turnover and higher losses from the petroleum and heavy engineering divisions.

The drop in earnings was in line with its revenue dipping 7% YoY to RM2.14 billion due to reduced contributions across key businesses.

MISC’s largest revenue contributor for the quarter, the petroleum segment, registered a 1.8% YoY decline in turnover to RM1.01 billion on a stronger ringgit against the US dollar.

The segment operated at a loss of RM54.4 million for the period, against a loss of RM20.1 million in 2Q17, due to higher bunker and vessel depreciation costs incurred.

In its exchange filing yesterday, MISC noted petroleum freight rates remain depressed due to overcapacity in the industry, but could recover in the medium to long term.

“Tanker demolition rates have remained high, but tanker earnings are still being hit as fleet growth continues to exert pressure on the petroleum freight rates.

“Rising global oil consumption, higher US exports and eroding inventories are expected to support the recovery in freight rates in the medium to longer term.”

The company said the OPECled production cuts were positive for the tanker market as demand for crude tankers is seen picking up, especially for the Arabian Gulf-Asian trade.

MISC’s liquefied natural gas (LNG) tanker business posted an 18.4% YoY drop in turnover to RM595.9 million on the reduced number of operating vessels and a lower charter rate for an LNG carrier which renewed its contract in October. Earnings for the segment was down on the lower revenue base and cost incurred from compensation paid for a terminated time charter contract.

MISC said its present portfolio of long-term charters will provide stable income and cashflow to the group amid the tonnage oversupply situation in the LNG spot market.

Turnover from MISC’s offshore business fell 8.4% YoY to RM289.1 million for the quarter as the 2Q17 performance included reimbursable revenue from the demobilisation of mobile offshore production units. Operating profit for the segment was lower on reduced revenue, which offset higher construction gains from its floating, storage and offloading “Benchamas 2” unit.

The heavy engineering segment operated at a net loss of RM46 million due to additional expenses incurred and lower turnover. The division brought in RM232.4 million in revenue — down 9.7% YoY — on lower contributions from post-sail away projects and conversion works, coupled with lesser number of dry-docking repairs and newly secured projects still in early stages of work.

MISC said while there is growing optimism for increased offshore activities industrywide due to stronger energy prices, the heavy engineering segment is expected to remain under pressure this year.

The offshore services provider declared a dividend of seven sen for the quarter, payable on Sept 14, bringing total dividends to 14 sen for the first half of the year (1H18).

The 2Q18 performance brings the group’s net profit in 1H18 to RM631.8 million, down 48.6% YoY for an EPS of 14.2 sen, while revenue declined 21.4% to RM4.16 billion over the same period.