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MISC

Recommendation: HOLD
Stock Code: 3816 Bloomberg: MISC MK Price: MYR8.86 12-Month Target Price: MYR9.00 Date: August 24, 2010

Board: Main Pr i ce 30 Day Movi ng Aver age Price (MYR)


10.00

Sector: Trading/Services
9.50

GICS: Industrials/Marine 9.00

Market Value - Total: MYR39,549.3 mln 8.50

Summary: Listed on the Main Board of Bursa Malaysia 8.00

Securities, MISC is the leading international shipping line in 7.50


Malaysia and owns, leases and operates vessels
transporting LNG, petroleum products, containers and Vol ume Vol ('000)
10,000
chemicals. 8,000
6,000

Analyst: Kah Ling Chan 4,000


2,000
0
Aug 07 Oct 07 Jan 08 Mar 08 May 08 Jul 08 Sep 08 Dec 08 Feb 09 Apr 09 Jun 09 Sep 09 Nov 09 Jan 10 Mar 10 May 10 Aug 10

Results Review & Earnings Outlook Recommendation & Investment Risks

 MISC’s 1QFY11 (Mar) results came in ahead of market as well as our  We have increased our FY11 and FY12 EPS by 9.3% and 9.7%,
expectations. Net profit grew 83.3% YoY to MYR428.0 mln despite respectively to account for lower losses from the liner division. We
revenue coming in slightly lower at RM3.27 bln (-16% YoY). maintain our Hold call but increase our 12-month target price to
MYR9.00 (previously MYR8.88). Our target price is based on our
 We note that energy shipping earnings fell 13% YoY in 1QFY11 (Mar), discounted cashflow (DCF) valuation, with parameters unchanged
largely due to still weak crude tanker shipping rates. Management (8.6%-9.8% WACC and 3% terminal growth rate) and includes DPS of
cited improved performance in the restructured liner business after 35 sen.
they left the Grand Alliance in January 2010. Losses at this division of
MYR134.7 mln was dramatically trimmed from the MYR273.0 mln  The listing of its heavy engineering arm MMHE will complete in 4Q10
recorded in the previous quarter and ahead of our expectations. and will reduce MISC’s stake to 74.5% from 100%. The potential gain
on sale will only be ascertained after the institutional IPO price is
 Increased profitability in the heavy engineering business also boosted finalized and is not factored into our earnings.
the bottomline. MISC noted that there were improved freight rates in
their main shipping segments, but expect the competitive environment  Nevertheless, MISC could surprise on the upside, as it has been on an
to remain challenging and short-term rates, volatile. acquisition spree, recently purchasing 50% of VTTI B.V.. In addition, it
has also signed a contract for the purchase of four new Suezmax
 No interim dividend was declared for the period. tankers, set to be delivered in 2012. We do not rule our further
acquisitions and investments given its ample cash hoard of MYR7.63
 Management remains subdued, guiding that LNG revenues will remain bln as of end June 2010.
stable in the near term, but chemical shipping will continue to
disappoint, as rates are still under pressure. Nevertheless, losses from  Risks to our recommendation and target price include: (i) an increase
the liner division will decline, as MISC has exited from the Asia-Europe in global capacity which could pressure freight rates and impact
trade. A global shortage of container boxes is also keeping demand margins, (ii) an unexpected rise in fuel costs and (iii) a continued weak
and freight rates firm. economic environment in MISC’s key markets

Key Stock Statistics Per Share Data


FY Mar. 2010 2011E FY Mar. 2008 2009 2010 2011E
Reported EPS (sen) 17.7 36.5 Book Value (MYR) 4.96 5.57 5.30 4.73
PER (x) 50.1 24.3 Cash Flow (sen) 104.7 86.1 73.0 84.4
Dividend/Share (sen) 35.0 35.0 Reported Earnings (sen) 65.3 35.9 17.7 36.5
NTA/Share (MYR) 5.08 4.50 Dividend (sen) 35.0 35.0 35.0 35.0
Book Value/Share (MYR) 5.30 4.73 Payout Ratio (%) 71.9 114.3 222.2 95.8
No. of Outstanding Shares (mln) 4,463.8 PER (x) 13.6 24.7 50.1 24.3
52-week Share Price Range (MYR) 7.80 - 9.00 P/Cash Flow (x) 8.5 10.3 12.1 10.5
Major Shareholders: % P/Book Value (x) 1.8 1.6 1.7 1.9
Petroliam Nasional Berhad 62.4 Dividend Yield (%) 4.0 4.0 4.0 4.0
Employee Provident Fund Board 10.3 ROE (%) 11.7 7.0 3.2 7.3
* Stock deemed Shariah compliant by the Securities Commission Net Gearing (%) 30.1 39.2 20.8 49.8

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MISC
Recommendation: HOLD
Stock Code: 3816 Bloomberg: MISC MK Price: MYR8.86 12-Month Target Price: MYR9.00 Date: August 24, 2010

Quarterly Performance
FY Mar. / MYR mln 1Q11 1Q10 % Change
Reported Revenue 3,270.5 3,893.4 -16.0
Reported Operating Profit 539.0 354.7 52.0
Depreciation & Amortization NA NA NA
Net Interest Income / (Expense) -86.6 -88.3 -1.8
Reported Pre-tax Profit 471.3 273.5 72.3
Reported Net Profit 428.0 233.5 83.3
Reported Operating Margin (%) 16.5 9.1 -
Reported Pre-tax Margin (%) 14.4 7.0 -
Reported Net Margin (%) 13.1 6.0 -
Source: Company data

Profit & Loss


FY Mar. / MYR mln 2009 2010 2011E 2012E
Reported Revenue 15,783.5 13,775.1 13,499.6 14,174.6
Reported Operating Profit 1,922.4 1,266.6 2,227.4 2,452.2
Depreciation & Amortization -1,911.4 -2,136.4 -2,136.4 -2,136.4
Net Interest Income / (Expense) -276.8 -232.1 -244.5 -233.5
Reported Pre-tax Profit 1,556.3 911.9 1,883.8 2,122.3
Effective Tax Rate (%) 4.3 9.8 4.5 4.5
Reported Net Profit 1,366.6 682.0 1,630.8 1,859.5
Reported Operating Margin (%) 12.2 9.2 16.5 17.3
Reported Pre-tax Margin (%) 9.9 6.6 14.0 15.0
Reported Net Margin (%) 8.7 5.0 12.1 13.1
Source: Company data, S&P Equity Research

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Recommendation and Target Price History P rice (M YR)


Date Recommendation Target Price 10.0
New Hold 9.00
26-Feb-10 Hold 8.88
26-Feb-09 Hold 8.88 9.5
28-Oct-08 Hold 9.17

9.0

8.5

8.0

7.5
Aug 07 Nov 07 Feb 08 May 08 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10

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