MISC - BUY - 19 Aug 2008

MISC - 1QFY09 disappoints (Results Note)



Price: RM8.75

Target Price: RM10.10

Recommendation: BUY (under review)



· 1QFY09 results was disappointing with core net profit of RM522.9m at only 21% of our forecast and street's, mainly due to higher bunker costs and increased losses from the liner business. We had been expecting a stronger 1Q on the back of robust 1Q tanker rates.

· QoQ, 1Q09 revenue rose 3.1% on higher contribution from tanker division owning to stronger tanker rates. EBIT however fell 9.2% to RM564.1m on the back of higher operation costs and doubling of losses for the liner division.

· YoY, 1Q09 revenue jumped 24.9% with growth across all divisions but EBIT margin declined to 15.5% from the previous 18.6%, mainly due to widened liner losses and higher bunker cost which had escalated to above US$600/MT by June 08 (+70% YoY).

· Robust tanker rates for 2QCY08 with Baltic Dirty Index (BDI) registering high of 2245 in May 08 but has since softened to 1340 at the time of writing coinciding with easing oil price which could signal lower oil demand as global economy cools down. We expect tanker rates to trend downwards before spiking again in CY4Q on the back of seasonal demand.

· Heavy engineering and offshore divisions still the rising star, with 2 MOPU contracts worth US$160m awarded to MMHE recently. Upon completion, the MOPUs should provide stable recurring income to the offshore division from FY10 onwards. Expect the award of another 2 FSOs as per management's guidance during the previous result brief.

· Placing our forecasts, target price of RM10.10 and BUY recommendation under review pending further details from the briefing on Wednesday with a negative bias on weak liner division.