KUALA LUMPUR: Analysts are positive on MISC Bhd’s move to exit its liner business, but they remain cautious on the group’s tanker operations which have been bleeding losses as well.
Analysts said MISC’s tanker business was the next largest drag to earnings after the liner division, and the situation is expected to persist until next year. The tanker division incurred about RM270 million in pre-tax losses for the six-month period ended Sept 30.
“The tanker division would likely remain challenging given that global tanker fleet growth will peak in 2012,” AmResearch said in a note last Friday.
OSK Research also noted the unbalanced demand and supply situation could persist for another one or two years, which would depress freight rates for MISC’s tanker business.
“Meanwhile, the expected peak in winter rates may not even materialise as it is unlikely that rates will hit a seasonal high if the market is experiencing an imbalance,” it said.
For the cumulative six-month period, MISC’s net profit fell 67.1% to RM262 million while revenue declined 11.5% to RM5.63 billion.
MISC said the cessation of the liner business would cost the group a US$400 million (RM1.28 billion) one-time loss and would throw MISC into the red for FY11 ending Dec 31. The shipping company would incur US$30 million in costs, due to penalty charges for cessation of services and payment for retrenchment.
MISC is expected to exit the liner business by June 30, 2012 and will also dispose of all its liner-related assets.
Despite that, analysts welcomed the move as MISC had been dragged down by its liner business for the past three financial years despite a turnaround plan last year. MISC said the liner business had incurred US$789 million in losses for the past three financial years.
“We are positive on MISC exiting the liner business, which has dragged the group down with losses totalling US$120 million this year. With the losses to be fully provided for this year, we estimate that this could potentially stop the bleeding in the division from 2HFY12 onwards,” said OSK Research.
OSK Research added that MISC could raise at least US$315 million from the vessel disposals.
Nevertheless, it downgraded its FY11 revenue forecast by 13%, and core earnings by 26% to RM451.5 million given the depressed rates.
“We expect MISC to book in losses of RM804 million after factoring in the exceptional provisions of US$400 million arising from the cessation of its liner business,” it said.
Similarly, Kenanga Research downgraded its FY11 earnings forecast by 26% to RM401.8 million, excluding the US$400 million one-off cost.
It said MISC would likely post lower earnings due to higher bunker costs and lower charter rates for the petroleum and chemical tanker divisions.
Kenanga has an “underperform” call on MISC with a fair value of RM6.05.
OSK Research and AmResearch are more optimistic and upgraded their calls to “buy” with target prices of RM7.23 and RM7.40 respectively.
“We are positive on this development given the elimination of losses from the liner division, which we had earlier estimated at between RM300 million and RM600 million for FY12-FY13. As a result, we have raised FY12-FY13 core earnings by 3% and 5%,” said AmResearch.
OSK Research noted that MISC would start replenishing cash in FY12 after disposing of its container segment, which would bolster profit margins and lower its depreciation expenses.
“Axeing the liner business will help enhance FY12-FY13 profit by RM172 million (24%) and RM226 million (21%),” it said.
MISC was among the top losers last Friday, shedding 33 sen to close at RM5.80.
This article appeared in The Edge Financial Daily, November 29, 2011.
Analysts said MISC’s tanker business was the next largest drag to earnings after the liner division, and the situation is expected to persist until next year. The tanker division incurred about RM270 million in pre-tax losses for the six-month period ended Sept 30.
“The tanker division would likely remain challenging given that global tanker fleet growth will peak in 2012,” AmResearch said in a note last Friday.
OSK Research also noted the unbalanced demand and supply situation could persist for another one or two years, which would depress freight rates for MISC’s tanker business.
MISC says the cessation of the liner business would cost the group a US$400 million one-time loss and would throw MISC into the red for FY11 ending Dec 31.
“Meanwhile, the expected peak in winter rates may not even materialise as it is unlikely that rates will hit a seasonal high if the market is experiencing an imbalance,” it said.
For the cumulative six-month period, MISC’s net profit fell 67.1% to RM262 million while revenue declined 11.5% to RM5.63 billion.
MISC said the cessation of the liner business would cost the group a US$400 million (RM1.28 billion) one-time loss and would throw MISC into the red for FY11 ending Dec 31. The shipping company would incur US$30 million in costs, due to penalty charges for cessation of services and payment for retrenchment.
MISC is expected to exit the liner business by June 30, 2012 and will also dispose of all its liner-related assets.
Despite that, analysts welcomed the move as MISC had been dragged down by its liner business for the past three financial years despite a turnaround plan last year. MISC said the liner business had incurred US$789 million in losses for the past three financial years.
“We are positive on MISC exiting the liner business, which has dragged the group down with losses totalling US$120 million this year. With the losses to be fully provided for this year, we estimate that this could potentially stop the bleeding in the division from 2HFY12 onwards,” said OSK Research.
OSK Research added that MISC could raise at least US$315 million from the vessel disposals.
Nevertheless, it downgraded its FY11 revenue forecast by 13%, and core earnings by 26% to RM451.5 million given the depressed rates.
“We expect MISC to book in losses of RM804 million after factoring in the exceptional provisions of US$400 million arising from the cessation of its liner business,” it said.
Similarly, Kenanga Research downgraded its FY11 earnings forecast by 26% to RM401.8 million, excluding the US$400 million one-off cost.
It said MISC would likely post lower earnings due to higher bunker costs and lower charter rates for the petroleum and chemical tanker divisions.
Kenanga has an “underperform” call on MISC with a fair value of RM6.05.
OSK Research and AmResearch are more optimistic and upgraded their calls to “buy” with target prices of RM7.23 and RM7.40 respectively.
“We are positive on this development given the elimination of losses from the liner division, which we had earlier estimated at between RM300 million and RM600 million for FY12-FY13. As a result, we have raised FY12-FY13 core earnings by 3% and 5%,” said AmResearch.
OSK Research noted that MISC would start replenishing cash in FY12 after disposing of its container segment, which would bolster profit margins and lower its depreciation expenses.
“Axeing the liner business will help enhance FY12-FY13 profit by RM172 million (24%) and RM226 million (21%),” it said.
MISC was among the top losers last Friday, shedding 33 sen to close at RM5.80.
This article appeared in The Edge Financial Daily, November 29, 2011.
