Analysts see cloudy days ahead for MISC


MISC Bhd’s financial performance for the recent quarter ended June 30, 2018, saw a decline due to the heavy plunge in its liquefied natural gas (LNG) division.

Its net profit for the second quarter (2Q18) plummeted 42.28% to RM321.2 million from RM556.5 million, while its revenue dropped 6.98% to RM2.14 billion from RM2.3 billion a year ago.

MISC, which is 73.3% controlled by the government, attributed the fall to lower contribution from its core segments, which are the LNG, petroleum, offshore and heavy engineering divisions.

Analysts anticipate cloudy days ahead for MISC for the financial year 2018 (FY18) due to the volatile petroleum shipping market. On top of that, most research houses have reiterated their ‘Hold’ call for MISC due to uncertainties in the company’s prospects for the next couple of years.

According to Kenanga Investment Bank Bhd, the shipping line is expected to see weaker earnings for FY18, possibly right up to FY19 following its continued losses in the petroleum shipping segment.

“Plagued by continued losses in its petroleum shipping segment, as spot petroleum shipping rates continue to show little signs of recovery on the back of tonnage oversupply, we anticipate its earnings for the FY18 and FY19 to be weaker,” it said.

Kenanga said extended losses in MISC’s spot petroleum shipping rates would be detrimental to the group’s earnings as 45% of its petroleum shipping portfolio is on spot charters as of 1Q18.

“The bulk of the group’s earnings are nonetheless still supported by the long-term LNG charters. The group’s low net gearing of around 0.2 times also allows it to be well-positioned for further investment opportunities,” it said.

Hong Leong Investment Bank Bhd shares the same view as MISC’s profit is predicted to fall 25% to RM1.6 billion for FY18 on the back of weaker charter rates, as well as the ringgit against the US dollar.

The research house also anticipates the shipping line’s earnings forecast for FY19 and FY20 to drop 10% and 3% respectively, due to the lower petroleum tanker rate and higher operating cost for its heavy engineering segment.

“MISC’s 2018 first-half core profit of RM622 million was below our expectation and consensus’, dragged by the weaker performance from petroleum and heavy engineering divisions,” it said.

On Aug 3, 2018, MISC announced it has signed a 16-year floating, storage and offloading facility charter contract with Hess Exploration and Production Malaysia BV for US$441 million (RM1.81 billion) effective Sept 1, 2018.

According to analysts, based on the current exchange rate of the US dollar, the contract is expected to pose very little impact to MISC’s performance for FY18 and about 1% of the revenue generated will be seen in FY19 onwards.

Kenanga said the contract is believed to have provided an additional revenue impact of RM112 million per annum (pa), representing about 1% of MISC’s earnings for FY18 to FY19.

“Based on an assumed exchange rate of RM4.05 per US dollar, the contract is estimated to provide an additional revenue impact of roughly RM112 million pa.

“It is predicted that 50% of the contract’s margin would translate into a positive impact of around 3% to the group’s bottom-line earnings,” it said.

According to Kenanga, MISC’s FY18 performance would only see the impact from the contract in four months due to its commencement date.

“We opt to make no changes to our FY18 and FY19 projections for now.

“The securement of this contract does, however, indicate the group’s desire to seek growth opportunities within the offshore space, outside its forte in the stable LNG shipping segment,” it said.

MISC has a market capitalisation of RM26.42 billion as of June 30, 2018, 20.63% lower than RM33.29 billion a year ago.

In its 2Q18, MISC’s LNG division revenue fell 18.4% to RM595.9 million from RM730 million a year ago due to the reduction of operating vessels, as well as a lower charter rate for the contract renewal of an LNG carrier in October 2017.

The division was also awarded compensation for the early termination of a time charter contract, coupled with lower revenue in the current quarter.

As contribution dropped from its LNG, petroleum, offshore and heavy engineering divisions, its revenue fell 6.98%.MISC posted its highest revenue of RM15.78 billion in 2009, a 21.9% rise from the year before.