MISC’s future profits in question

PETALING JAYA: Affin Hwang Capital remains cautious on MISC Bhd’s earnings in the coming quarter due to lower charter rates on the back of oversupply of tonnage for the petroleum and liquefied natural gas (LNG) segments as well as lower order book for the heavy engineering segment.

This is despite MISC’s 1H’17 net profit having comprised 63% and 58% of its and consensus 2017 estimates.

“We believe earnings momentum may be not sustained into 3Q-4Q’17, as overall freight rates could be weaker due to new build supply, which would impact the LNG and petroleum segments. LNG’s revenue in 2Q’17 was partly bolstered by the recognition of compensation for early termination of Tenaga Lima, which may not be recurring in nature,” said Affin Hwang.

It maintained its “sell” call on MISC with a target price of RM6.50. Risk to its call includes rebound in shipping charter rates.

However, RHB Research Institute believes the recurring earnings nature of the LNG and offshore segment would continue to support MISC’s bottomline going forward.

As a whole, it said MISC’s 1H’17 results were in line with its expectations at 51% of its FY17 forecast, but exceeded consensus, at 60%.

RHB adjusted its target price to RM8.86, from RM8.34 as it rolled forward its valuation to FY18, and maintained its “buy” recommendation on MISC.