MIDF Research downgrades MISC to ‘Neutral’ due to earnings revision

MIDF Amanah Investment Bank Bhd (MIDF Research) has downgraded MISC Holdings Bhd to ‘Neutral’ from ‘Buy’ as a result of an earnings revision and lowered the energy logistics group target price to RM3.90 from RM4 previously.

In a note today, the research house said Westports Holdings Bhd is currently trading at 18.2 times FY23F price-to-earnings (P/E), slightly lower than its five-year mean, but MIDF Research believes this is justified given MISC’s muted near-term outlook against a backdrop of high inflationary pressures and change in operational patterns of container liner shipping.

MIDF Research said it made a few adjustments to MISC’s earnings forecasts, which include lowering the effective tax rates between 20%-22% to take into account the 10-year investment tax allowance (ITA) recently granted by the Ministry of Finance (MoF).

It also factored in the imbalance cost pass-through (ICPT) implementation in the first half of FY23, which is expected to impact the electricity costs by about 30%-40%, as well as lowering MISC’s container throughput growth assumptions in FY23E and FY24F to 2.1% and 4.1%, respectively as growing recessionary risks might lead to softening consumer demand particularly in the US and Europe.

Lastly, it revised upwards MISC’s conventional throughput growth assumptions in FY23E and FY24F to 2% and 2%, respectively with the addition of the new Liquid Bulk Terminal 4A in the fourth quarter 2023 (4Q23).

“As such, our earnings estimates for FY23E/FY24F were revised marginally by +0.4%/-0.2%,” it said.

Westports concluded 2022 by posting core net profit of RM206.5 million in 4Q22, bringing the full-year profit to RM670.8 million or 104% and 97% of MIDF Research and consensus estimates.

In line with its 75% dividend payout policy, MISC announced a second interim dividend of 7.46 sen or totalling 14.37 sen for FY22. — TMR / pic source: misc.com.my