PP 7767/09/2010(025354)

Malaysia
RHB Research
Institute Sdn Bhd
18 May 2010
Corporate Highlights A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te 18 May 2010

MARKET DATELINE

MISC Share Price

Fair Value
:
:
RM8.73
RM8.02
Acquiring A 50% Stake In An International Tank Recom : Underperform
(Maintained)
Terminal Business For US$735m

Table 1 : Investment Statistics (MISC; Code: 3816) Bloomberg: MISF MK

Net Net
FYE Turnover Profit# EPS# Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Mar (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2010 13,775.1 703.3 18.2 (51.8) 47.9 - (110.8) 1.6 2.9 0.2 4.0
2011f 14,474.2 1,473.4 33.0 81.2 26.4 37.0 202.1 1.7 6.3 0.3 4.0
2012f 15,118.8 1,638.5 36.7 11.2 23.8 49.0 69.9 1.6 6.9 0.3 4.0
2013f 15,749.8 1,959.9 43.9 19.6 19.9 48.0 39.8 1.6 8.2 0.3 4.0
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ A major acquisition. MISC is acquiring a 50% stake in VTTI B.V. (VTTI), Issued Capital (m shares) 4,463.8
an owner/operator of oil product storage terminals with a combined Market Cap(RMm) 38,968.9
capacity of about 6m cbm and refineries in various locations including Daily Trading Vol (m shs) 0.6
Amsterdam and Rotterdam in Holland, Fujairah in UEA and Port Canaveral 52wk Price Range (RM) 7.78-8.79
in Florida, USA, for US$735m (RM2.35bn) cash. Major Shareholders: (%)
Petronas 62.7
♦ A “defensive” investment. MISC said that the acquisition is in line with EPF 11.0
its strategy to grow its tank terminal business, further strengthening its PNB 8.4
core energy transportation and logistics portfolio. VTTI also provides MISC
with immediate access to tank terminal assets “strategically located at the FYE Mar FY11 FY12 FY13
EPS Revision (%) - - -
crossroads of major products and energy shipping lanes of the world”. As
Var to Cons (%) -11 -25 -9
far as impact on earnings, MISC said it is “an attractive investment that
provides stable returns”. Financial performance of VTTI was not disclosed. PE Band Chart
Given the huge capital outlay and defensive nature of the business, we do
not expect material earnings enhancement from the acquisition (we will find
PER = 29x
out more during MISC’s analysts briefing this afternoon). The acquisition PER = 22x
PER = 15x
will raise MISC’s net debt and gearing of RM4.9bn and 0.21x as at 31 Mar
2010 to RM7.3bn and 0.31x.
♦ A big let-down? We expect muted reaction from the market as the
market could have hoped for an acquisition by MISC that is far more
exciting than this, i.e. a good asset at a bargain price at the bottom of the
Relative Performance To FBM KLCI
cycle (for instance, like American Eagle Tankers back in 2003).
♦ Forecasts. Maintained pending the company’s guidance on earnings from FBM KLCI

the acquisition.
♦ Risks to our view. The risks include: (1) An earlier-than-expected
recovery in the shipping sector; and (2) Lower-than-expected bunker cost. MISC

♦ Maintain Underperform. The performance of MISC’s petroleum, chemical

and container shipping segments will continue to be weighed down by the
subdued freight rates and volumes over the next 1-2 years on the back of
the double-whammy of overcapacity and slow demand on the back of a mild
recovery in the global economy. This eclipses MISC’s investment case Joshua CY Ng
based on the steady income stream from its LNG division and high growth (603) 92802151
at its offshore & engineering businesses. Indicative fair value is RM8.02 joshuang@rhb.com.my
based on “sum of parts” (see Table 2).

Please read important disclosures at the end of this report.

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 18 May 2010

Table 2: Sum-Of-Part Valuation For MISC

RMm RM/share Basis
LNG 18,248.2 4.09 DCF, WACC of 6.47%
Petroleum 7,989.1 1.79 1.5x book value
Chemical 2,583.4 0.58 1.5x book value
Liner 1,789.6 0.40 1.5x book value
Oil & Gas 10,129.1 2.27 16x 1-year forward earnings
40,739.4 9.13
Net debt (4,922.6) -1.10 As at 31 Mar 10
Fair value 35,816.8 8.02

Table 3: Earnings Forecasts Table 4: Forecast Assumptions

FYE Mar (RMm) FY10a FY11F FY12F FY13F FYE Mar FY11F FY12F FY13F

Turnover 13,775.1 14,474.2 15,118.8 15,749.8 LNG fleet size (units) 29 29 29

Turnover growth (%) (12.7) 5.1 4.5 4.2 Aframax/VLCC fleet size (units) 67 70 70

EBITDA 2,512.6 3,304.5 3,592.4 4,019.4

EBITDA margin (%) 18.2 22.8 23.8 25.5

Depreciation (1,246.0) (1,270.9) (1,296.3) (1,322.3)

Net Interest (366.9) (353.5) (430.6) (486.4)
Associates 33.4 35.0 35.0 35.0
EI (21.2) 0.0 0.0 0.0

Pretax Profit 911.9 1,715.1 1,900.5 2,245.7

Tax (89.7) (72.4) (75.8) (81.0)
PAT 822.2 1,642.7 1,824.7 2,164.7
Minorities (140.2) (169.3) (186.2) (204.9)
Net Profit 682.0 1,473.4 1,638.5 1,959.9
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer,
invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an
interest in the securities mentioned by this report.

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persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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