Tank terminal disposal slight positive for MISC

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research opined that MISC Bhd’s disposal of its tank terminal business is a slight positive to the group as the disposal value is higher than the expected RM100 million.

On Monday, MISC announced that it was selling its 45% stake in Centralised Terminals Sdn Bhd (CTSB) to its joint venture partner Dialog Group Bhd for RM193 million.
This marks the group’s exit from the tank terminal business to focus on its core business in the energy-related maritime solutions and services.

Nonetheless, HLIB Research said the impact would be minimal in terms of earnings loss as Tanjung Langsat Tank Terminal only has a capacity of 640,000 metric tonnes, relatively immaterial as compared with its previously owned tank terminal VTTI, which has a capacity of eight million metric tonnes.

“Based on our estimation, profit after tax impact of the disposed tank terminal would be circa RM20 million per annum, 1% of both FY18 and FY19 earnings forecast.”

Despite the positive impact of the disposal, HLIB Research maintains a slightly negative view on the company given that the vessel oversupply in the liquefied natural gas segment is expected to persist globally with ongoing new deliveries in 2017-19.

For the tanker segment, the research house said high fleet growth will continue to put pressure on overall tanker rates.

“Heavy engineering will continue to be marginally profitable while offshore will improve slightly in 2017 due to full-year recognition of Gumusut-Kakap Semi-Floating Production System (L) Ltd (GKL) and improvement in charter rate of GKL post successful variation order claim.”

HLIB Research, which is maintaining a “hold” call on MISC with a higher target price of RM7.54, noted that earnings headwinds persist with petroleum tanker rates expected to remain depressed this year.

“The LNG division will face long-term headwinds as its long-term charters come to expiry while new LNG contracts are significantly less profitable.”

Meanwhile, MIDF Research said with the proposed acquisition totalling RM193 million (assumed funded by bank borrowings) and the consolidation of CTSB’s outstanding loans, Dialog’s financial position will shift from a net cash position to a net debt position with a net gearing ratio of about 0.1 times, which would imply it will need to take on an additional RM315 million in borrowings.

The research house is maintaining a “neutral” call on Dialog with a higher target price of RM2.16.

MISC shares closed unchanged at RM7.38 on some 587,500 shares done, while Dialog shares were up one sen to close a RM2, with some 22.9 million shares changing hands.