HLIB Research expects MISC’s crude oil shipping business and liquefied natural gas to post a slight improvement in 4Q23.
PETALING JAYA: MISC Bhd
’s third quarter results have fallen short of analysts expectations, leading many to change their call recommendations and target price (TP) for the energy-based logistics player.
MISC posted a third quarter ended Sept 30, (3Q23) core net profit of RM465.1mil, bringing its nine months (9M23) core earnings to RM1.6bil, which was 48% higher year-on-year.
The numbers were, however, at about 71% of consensus full-year forecasts with the miss attributed to unexpected losses at MISC’s marine and heavy engineering subsidiary, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), as a result of additional cost provisions in the period.
Hong Leong Investment Bank (HLIB) Research slashed its financial year 2024 (FY24), FY25 and FY26 forecast for MISC by 18.5%, 9.9% and 5.7%, respectively, to account for the lower contribution and profit margins from MISC’s offshore segment and reduced contribution from MMHE.
“We downgrade the stock to a “hold” (from “buy”) with lower sum-of-parts derived TP of RM7.48 a share (from RM7.81) as we view its risk-reward profile has turned the balance at this juncture.
“In our view, there are no positive catalysts to be excited for in the near term, especially with Mero 3 floating production storage and offloading vessel conversion revenue fading in FY23 while its bareboat charter will only start setting in FY25,” the research outfit noted in its latest report on MISC.
HLIB Research said its forecast dividend yield of 4.8% for MISC over FY23, FY24 and FY25 may not make it an attractive dividend play for the time being.
MISC declared a third interim dividend of seven sen for the quarter, which took its 9M23 declared dividend to 24 sen.
The research house expects MISC’s crude oil shipping business and liquefied natural gas (LNG) to post a slight improvement in 4Q23 due to higher quarter-on-quarter freight rates and uptick in seasonal demand for LNG in the winter season.
TA Research also trimmed its TP and earnings expectations for MISC but maintained its “buy” call on the counter.
“We lower our price-earnings (PE) valuation from 16.5 times to 15.5 times, in line with MISC’s five-year historical forward PE.
“Maintain ‘buy’ albeit at a lower TP of RM8 per share (previously RM8.60) pegged to 15.5 times 2024 earnings per share.”
The research house warned Malaysia may impose a tonnage tax for the shipping industry from 2024 onwards.
The tonnage tax is based on net tonnage of the entire fleet of vessels under operation.
TA Research added that according to MISC’s management and based on experience in other jurisdictions, the tonnage tax is usually around 10% of corporate tax.
“We can expect the tonnage tax, if implemented, to be around 2.4% for MISC,” it noted.
