HLIB Research

PP 9484/12/2012 (031413)

MISC (HOLD , EPS )

NEWSBREAK INDUSTRY: NEUTRAL

4 February 2013 Price Target: RM5.30 () Share price: RM4.45 Daniel Wong kkwong@hlib.hongleong.com.my (603) 2168 1077 KLCI Expected share price return Expected dividend return Expected total return Share price
(RM) 6.0
MISC (LHS) KLCI (RHS)

Privatization
News

Major shareholder (62.67%) Petronas has offered to privatize MISC at RM5.30/share (+19.1% premium to last traded price of RM4.45 on 31 Jan 2013). Petronas is expected to fork out RM8.83bn for the remaining shares it does not own. MISC other substantial shareholders are EPF at 9.66% and SASB (Skim Amanah Saham Bumiputra) at 6.35%. However, Petronas clarified that it does not intend to privatize MMHE, a 66.5% owned subsidiary of MISC. None. MISC plays an integral role in supporting Petronass integrated oil & gas business activities (LNG shipping, offshore supports and etc). MISC had undergone various restructuring exercises since its listing back in 1983, and currently facing setbacks (on global economy uncertainty). MISC share price had been punished severely from high of RM8.50 (Aug 2010) to RM4.00 before rebounded back to RM4.50 level, as investors continued to see uncertainties surrounding MISC, especially on its Petroleum, Chemical and Container (disposed in 2012) shipping divisions. We believe that Petronas will have better control in restructuring the shipping conglomerate (post privatization), and expect potential re-listing of a leaner structure shipping conglomerate in the future (fetch better valuation). We advise shareholders to take the offer of RM5.30/share (share price had been staying below this level since midApril 2012), as we do not expect share price to recover back to RM5.30 level in the near term, given continued oversupply concern on Petroleum and Chemical shipping industries, while USA is exploring the development of shale oil and gas (reducing the demand for petroleum shipping). Continued oversupply of petroleum and chemical ships, depressing charter rates further. Increased in bunker cost. Slow recovery of global economy. Unchanged. Hold Positives Potential synergy from VTTI. Stronger earnings post disposal of container division. Negatives Slow down global economy growth. Continued oversupply of tankers, pressuring freight rates. Maintained hold with higher target price of RM5.30, based on offered price.

1628 19.1% 2.2% 21.3%

(KLCI) 1700 1680 1660 1640 1620 1600 1580 1560 1540 1520 1500

Financial Impacts Comments

5.5 5.0 4.5 4.0 3.5 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12

Information Bloomberg Ticker Bursa Code Issued Shares (m) Market cap (RM m) 3-mth avg. volume (000) Price Performance Absolute Relative Major shareholders Petronas EPF SASB 1M 8.5 12.6

MISC MK 3816 4,464 19,864 1,292 3M 12M 2.8 -26.4 5.8 -31.2

62.7% 9.7% 6.4%

Risks

Forecasts Rating

Summary Earnings Table FYE Mar (RM m) 9M11A* 2012E 2013E 2014E Turnover 11,341 9,381 9,571 10,252 EBITDA 2,007 2,256 2,893 3,067 Pre-tax Profit -1,629 805 1,479 1,733 Rpt. net profit -1,975 534 1,058 1,248 Norm. net profit 363 534 1,058 1,248 Rpt. EPS (sen) -44.3 12.0 23.7 28.0 Norm. EPS (sen) 8.1 12.0 23.7 28.0 P/E (x) 54.7 37.2 18.8 15.9 Book Value (RM) 4.71 4.73 4.86 5.04 P/B (x) 0.9 0.9 0.9 0.9 Net Dvd Yield (%) 0.0 2.5 2.5 2.5 Net Gearing (%) 51.4 56.3 69.6 62.6 ROE (%) 1.69 2.55 4.94 5.64 ROA (%) 0.9 1.3 2.6 3.1 HLIB * Annualized 9MFY12/11E for comparison

Valuation

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Financial Projections
Income statement FYE 31 Dec (RMm) FY03/11A 9M2011A FY12/12E FY12/13E FY12/14E Revenue 12,326 8,506 9,381 9,571 10,252 Operating cost -9,335 -7,000 -7,125 -6,677 -7,185 EBITDA 2,991 1,506 2,256 2,893 3,067 Depreciation -1,261 -961 -1,283 -1,312 -1,276 EBIT 1,730 544 973 1,581 1,791 Interest income 150 86 23 26 29 Interest expense -347 -280 -441 -408 -378 Associates 160 181 250 279 291 Exceptionals -3,050 -4,154 0 0 0 Pretax profit 2,244 -1,222 805 1,479 1,733 Taxation -17 -88 -89 -148 -173 Minorities -357 -171 -183 -273 -312 Reported net profit 1,871 -1,481 534 1,058 1,248 Normalized net profit 1,319 273 534 1,058 1,248 Basic shares (m) 4,464 4,464 4,464 4,464 4,464 Reported EPS (sen) 41.2 -33.2 12.0 23.7 28.0 Normalized EPS (sen) 29.0 6.1 12.0 23.7 28.0 Balance sheet FYE 31 Dec (RMm) Fixed assets Other long-term assets Other short-term assets Working capital Receivables Payables Inventory Net cash Cash ST debt LT debt Shareholders' funds Share capital Reserves Minorities Other liabilities Cashflow FYE 31 Dec (RMm) EBITDA Net interest received Working cap changes Taxation Others Operating cashflow Capex & acquisitions Free cashflow Other inv cashflow New borrowings Share issuance Dividends paid Other fin cashflow Forex Translation Net cashflow Beginning Cash Ending Cash Valuation ratios FYE 31 Dec (RMm) Rep. basic EPS (sen) Norm. basic EPS (sen) Norm. FD EPS (sen) PER (x) FD PER (x) Net DPS (sen) Net DY (%) BV/ share (sen) P/BPS (x) FCF/ share (sen) FCF yield (%) Market capitalization Net cash Enterprise value EV/ EBITDA (x) ROE (%) Other Ratios FYE 31 Dec (%) Growth (%) Sales Growth EBITDA Growth EBIT Growth PBT Growth Net Profit Growth Margins (%) EBITDA Margin EBIT Margin PBT Margin Net Profit Margin Net Debt/Equity (%)
FY03/11A 9M2011A FY12/12E FY12/13E FY12/14E

2,991 -197 -301 -17 -241 2,235 -4,646 -2,411 640 -701 0 -1,543 0 -97 -4,113 7,849 3,353

1,506 -193 1,008 -88 -1,189 2,235 0 -2,411 0 875 0 0 0 65 -4,113 3,353 4,155

2,256 -418 -998 -89 0 752 -2,208 -1,456 0 -602 0 -546 0 0 -2,604 1,856 345

2,893 -381 -239 -148 0 2,125 -500 1,625 0 -2,077 0 -546 0 0 -999 345 330

3,067 -349 92 -173 0 2,637 -500 2,137 0 -492 0 -546 0 0 1,099 330 937

FY03/11A

9M2011A

FY12/12E

FY12/13E

FY12/14E

FY03/11A

9M2011A

FY12/12E

FY12/13E

FY12/14E

26,819 4,755 436 -1,320 2,016 -3,739 404 -7,903 3,353 -1,247 -10,008 21,912 4,464 17,448 1,155 1,495

28,013 6,060 520 -2,328 1,886 -4,648 435 -10,037 4,155 -5,860 -8,333 21,009 4,464 16,545 1,289 6,148

28,938 6,310 520 -1,330 1,876 -3,562 356 -12,039 2,645 -5,860 -8,824 21,096 4,464 16,632 1,371 6,148

28,125 6,589 520 -1,091 1,914 -3,339 334 -10,961 2,630 -5,860 -7,731 21,708 4,464 17,244 1,544 6,148

27,349 6,880 520 -1,183 2,050 -3,593 359 -9,370 3,237 -5,860 -6,747 22,509 4,464 18,045 1,756 6,148

41.2 29.0 15.3 25 5.6 4.9 0.9 -0.5 -0.1 19,864 -7,903 27,766 9.3 5.8

-33.2 6.1 72.9 0 0.0 4.7 0.9 -0.5 -0.1 19,864 -10,037 29,901 19.9 1.3

12.0 12.0 37.2 10 2.2 4.7 0.9 -0.3 -0.1 19,864 -12,039 31,903 14.1 2.6

23.7 23.7 18.8 10 2.2 4.9 0.9 0.4 0.1 19,864 -10,961 30,824 10.7 4.9

28.0 28.0 15.9 10 2.2 5.0 0.9 0.5 0.1 19,864 -9,370 29,234 9.5 5.6

Assumption Metrics FYE 31 Dec (RMm) FY03/11A 9M2011A FY12/12E FY12/13E FY12/14E Revenue LNG 2,501 1,824 2,488 2,631 2,684 Petroleum Tankers 2,953 2,171 2,716 2,909 3,096 Chemicals 770 724 948 1,020 1,122 Offshores 681 610 771 810 850 Heavy Engineering 3,063 1,654 2,150 2,200 2,500 Liner 2,359 1,524 308 0 0 PBT LNG 1,453 1,034 1,443 1,526 1,557 Petroleum Tankers -147 -482 -542 -579 -520 Chemicals -177 -186 -253 -217 -128 Offshores 335 275 370 389 408 Heavy Engineering 424 251 323 330 375 Liner -578 -577 -536 0 0 Terminal 52 65 100 129 141

FY03/11A

9M2011A

FY12/12E

FY12/13E

FY12/14E

-10.5 16.6 35.5 70.3 72.6 18.6 9.3 7.2 5.0 54.0

-31.0 -49.7 -68.5 -68.6 -79.3 24.3 14.0 13.7 15.2 51.4

-17.3 12.4 34.1 13.5 46.8 18.0 7.2 6.4 -12.0 56.3

2.0 28.2 62.4 83.8 98.3 24.0 10.4 8.6 5.7 69.6

7.1 6.0 13.3 17.2 17.9 30.2 16.5 15.5 11.1 62.6

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Disclaimer The information contained in this report is based on data obtained from sources believed to be reliable. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, is made as to the accuracy, adequacy, completeness or reliability of the info or opinions in the report. Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies and associates nor person connected to it accept any liability whatsoever for any direct, indirect or consequential losses (including loss of profits) or damages that may arise from the use or reliance on the info or opinions in this publication. Any information, opinions or recommendations contained herein are subject to change at any time without prior notice. Hong Leong Investment Bank Berhad has no obligation to update its opinion or the information in this report. Investors are advised to make their own independent evaluation of the info contained in this report and seek independent financial, legal or other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise represent a personal recommendation to you. Under no circumstances should this report be considered as an offer to sell or a solicitation of any offer to buy any securities referred to herein. Hong Leong Investment Bank Berhad and its related companies, their associates, directors, connected parties and/or employees may, from time to time, own, have positions or be materially interested in any securities mentioned herein or any securities related thereto, and may further act as market maker or have assumed underwriting commitment or deal with such securities and provide advisory, investment or other services for or do business with any companies or entities mentioned in this report. In reviewing the report, investors should be aware that any or all of the foregoing among other things, may give rise to real or potential conflict of interests. This research report is being supplied to you on a strictly confidential basis solely for your information and is made strictly on the basis that it will remain confidential. All materials presented in this report, unless specifically indicated otherwise, is under copyright to Hong Leong Investment Bank Berhad. This research report and its contents may not be reproduced, stored in a retrieval system, redistributed, transmitted or passed on, directly or indirectly, to any person or published in whole or in part, or altered in any way, for any purpose. This report may provide the addresses of, or contain hyperlinks to, websites. Hong Leong Investment Bank Berhad takes no responsibility for the content contained therein. Such addresses or hyperlinks (including addresses or hyperlinks to Hong Leong Investment Bank Berhad own website material) are provided solely for your convenience. The information and the content of the linked site do not in any way form part of this report. Accessing such website or following such link through the report or Hong Leong Investment Bank Berhad website shall be at your own risk. 1. As of 04 February 2013, Hong Leong Investment Bank Berhad has proprietary interest in the following securities covered in this report: (a) -. 2. As of 04 February 2013, the analyst, Daniel Wong, who prepared this report, has interest in the following securities covered in this report: (a) -.

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Hong Leong Investment Bank Berhad (10209-W)

(Formerly known as MIMB Investment Bank Berhad) Level 8, Menara HLA No. 3, Jalan Kia Peng 50450 Kuala Lumpur Tel 603 2168 1168 / 603 2710 1168 Fax 603 2161 3880

Equity rating definitions

BUY TRADING BUY HOLD TRADING SELL SELL NOT RATED Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside. Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity. Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside. Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity. Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months. No research coverage, and report is intended purely for informational purposes.

Industry rating definitions

OVERWEIGHT NEUTRAL UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months. The sector, based on weighted market capitalization, is expected to have absolute return between 5% and +5% over 12-months. The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% over 12-months.

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