Saturday July 21, 2012
Worst is over for shipping giant
By JOHN LOH
ALTHOUGH the global shipping sector is not yet out of troubled waters, the consensus on MISC Bhd is that it has seen the worst of the storm.
Analysts mostly agree that the shipping conglomerate's earnings and share price have bottomed out after it underwent a massive “kitchen sinking” exercise brought on by the exit from its loss-making liner unit.
It can be recalled that MISC was forced to make provisions totalling US$546.3mil (RM1.72bil) in the past two quarters for its liner business, which was bleeding an average of US$200mil (RM631.5mil) a year for a staggering US$1.04bil (RM3.28bil) operational loss over five years.
With the provisions now largely a thing of the past, OSK Research is confident MISC's exit from the liner business will “drive profits going forward”, adding that the company could even see a writeback of at least US$174mil (RM549.41mil) to be raised from the sale of 10 container vessels.
MISC has 16 liner ships in its fleet. The remaining six are likely to be scrapped.
CIMB Research says MISC, which ceased the liner business in June, may still see a loss of US$30mil (RM94.73mil) in the second quarter ended June 30 a stark improvement over the first quarter's US$100mil (RM315.75mil) loss.
“From the third quarter onwards, there could still be US$3mil (RM9.47mil) to US$6mil (RM18.95mil) in operational losses per quarter due to the cost of unreturned boxes.
“MISC has made good progress from its exit plan and could raise US$200mil (RM631.5mil) from the sale of container vessels slightly better than expected,” opines the research house in a note to clients.
The company had posted a shock RM465,08mil net loss in its first quarter owing to the various provisions made to end the liner arm, which sent its shares plummeting to RM3.87 on June 5, a level not seen since August 2003.
The stock has so far recovered by some 21%, but is still down 15% for the year.
According to MIDF Research, MISC shares are severely undervalued at a record low two standard deviations below its historical price-to-book value, prompting an upgrade by the research house of the company to “buy” from “neutral”.
A survey of 20 analysts by Bloomberg shows that MISC has the equivalent of eight “buy”, eight ”hold”, and four “sell” calls.
But Kenanga Research, which recently cut its rating of MISC to “market perform” from “outperform”, cautions in a report that the firm's prospects remain uncertain in the face of a still-bearish outlook for shipping.
The factors weighing down the sector include sluggish charter rates, unyielding bunker costs and a continuous overcapacity that will stretch till 2014, Kenanga Research explains.
While its liquefied natural gas (LNG) division, considered the “bedrock” of MISC's profitability, has been a consistent earnings driver, analysts are conscious that its chemical and petroleum transportation arms are unlikely to turn a profit for the next few years.
The outlook for petroleum shipping is said to be on the wane going into the second half of the year, after a decent first six months that essentially had an artificial boost from the stockpiling of crude oil by countries in the region ahead of the US-sanctioned embargo on Iranian oil imports.
Nonetheless, analysts are buoyant on the LNG division, which OSK Research calls a “potential earnings kicker”.
MISC has already commissioned two floating storage units for Petronas Gas Bhd's regassification terminal in Malacca, which is set to be income-generating from August for a 20-year period.
Meanwhile, OSK Research believes Petroliam Nasional Bhd's (Petronas) recent acquisition of Canadian shale gas firm Progress Energy for US$4.6bil (RM14.52bil) is a long-term positive for MISC because the national oil company is exploring the development of a LNG export terminal.
“As the production of shale gas will be much cheaper compared to that of conventional gas, we see strong demand from the export market following Japan's nuclear crisis and the strong appetite for natural gas.
“This would stimulate shipping activities and lengthen the voyage time for cheaper LNG, which will in turn be favourable for MISC in terms of higher shipping rates,” the brokerage remarks.
CIMB Research also sees as “very high” MISC's chances of supplying an additional nine LNG ships for Petronas' various oil and gas projects given their close relationship. Petronas has a 62.67% stake in MISC.
The research house says MISC may provide four vessels to Petronas' Gladstone LNG plant in Queensland, Australia, three for the expansion of the ninth LNG train in Bintulu, and two for the floating LNG terminal offshore Sarawak.