PP 7767/09/2010(025354)

20 August 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
20 August 2010
MARKET DATELINE

MISC Share Price

Fair Value
:
:
RM8.86
RM8.07
1QFY03/11 Net Profit Jumps 83% YoY On Reduced Recom : Underperform
(Maintained)
Container Liner Losses

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) 48.6 - (112.4) 1.7 2.9 0.2 4.0
2011f 14,474.2 1,473.4 33.0 81.2 26.8 36.0 205.1 1.7 6.3 0.3 4.0
2012f 15,118.8 1,638.5 36.7 11.2 24.1 48.0 70.9 1.7 6.9 0.3 4.0
2013f 15,749.8 1,959.9 43.9 19.6 20.2 49.0 40.4 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
E i

RHBRI Vs. Consensus

♦ Earnings recovery driven by reduced container liner losses. Above
1QFY03/11 net profit came in within expectations at 27-29% of our full-year In Line
forecast and the full-year market consensus. The container liner division Below
remained in the red with RM134.7m losses. However, the losses were a lot
Issued Capital (m shares) 4,463.8
smaller vis-à-vis about RM300m per quarter over the last four quarters as
Market Cap (RMm) 39,549.2
the continued efforts to restructure the operation of the division finally bore
Daily Trading Vol (m shs) 0.8
fruit. 52wk Price Range (RM) 7.62-8.88

♦ Forecasts. Maintained.
Major Shareholders:
Petronas
(%)
62.7
♦ Risks to our view. The risks include: (1) An earlier-than-expected EPF 11.0
PNB 8.4
recovery in the shipping sector; and (2) Lower-than-expected bunker cost.
FYE Mar FY11 FY12 FY13
♦ Maintain Underperform. The performance of MISC’s petroleum, chemical
EPS Revision (%) - - -
and container shipping segments will continue to be weighed down by the Var to Cons (%) -8 -24 -10
subdued freight rates and volumes over the next 1-2 years. This eclipses
MISC’s investment case based on the steady income stream from its LNG PE Band Chart
division and high growth at its offshore & engineering businesses. Not
helping either, is the big letdown to MISC’s minority shareholders from the PER = 29x
PER = 22x
much anticipated listing of Malaysia Marine & Heavy Engineering (MMHE) PER = 15x
with only a faction of the new MMHE shares being offered to them based on
a “restricted ballot” basis. Indicative fair value is RM8.07 based on “sum of
parts” (see Table 4).

Relative Performance To FBM KLCI

FBM KLCI

MISC

Joshua CY Ng
(603) 92802151
Please read important disclosures at the end of this report. joshuang@rhb.com.my

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Table 2: Earnings Review (YoY Cumulative)

FYE Mar 2010 2011 2010 Observations/Comments
(RMm) 3M 3M 3M
Turnover 3,893.4 3,270.5 (16%)
LNG, Petroleum & Chemical 1,705.3 1,651.3 (3%) Lower petroleum and chemical freight rates.
Offshore & Heavy Eng. 1,443.0 1,022.8 (29%) Normal fluctuation in billings of marine engineering and oil & gas
fabrication businesses.
Integrated liner logistics 745.1 596.4 (20%) Reduced capacity.
EBIT 354.7 539.0 52% Driven largely by reduced losses from the container liner division.
Generally weaker performance from other divisions.
LNG, Petroleum & Chemical 473.2 409.8 (13%) Depressed freight rates and reduced volumes, except for the LNG segment
that is on long-term charters.
Offshore & Heavy Eng. 166.5 152.6 (8%) Normal fluctuation in profit recognition from marine engineering and oil &
gas fabrication businesses.
Integrated liner logistics (314.6) (134.7) (57%) Restructuring started to bear fruit.
Non-shipping 29.7 111.2 >100%
Net inc/(exp) (88.3) (86.6) (2%)
Associates 15.6 19.0 22%
EI (8.5) 0.0 nm
Pretax profit 273.5 471.3 72%
Taxation (2.1) (10.3) >100%
Minority interest (38.0) (33.1) (13%)
Net profit 233.4 428.0 83% Driven largely by reduced losses from the container liner division.
EPS (sen) 6.3 9.6 52%

Pretax profit (ex-EI) 282.0 471.3 67%

Net profit (ex-EI) 241.9 428.0 77%

EBIT margin 9% 16% 7% pts Driven largely by reduced losses from the container liner division.
Pretax margin 7% 14% 7% pts
Effective tax rate 1% 2% 1% pt

Table 3: Earnings Review (QoQ)

FYE Mar 2010 2011 QoQ Observations/Comments
(RMm) 4Q 1Q Chg
Turnover 3,307.4 3,270.5 (1%)
LNG, Petroleum & Chemical 1,658.4 1,651.3 (0%) Fleet expansion negated by lower petroleum and chemical freight rates.
Offshore & Heavy Eng. 1,069.9 1,022.8 (4%) Normal quarterly fluctuation in billings.
Integrated liner logistics 579.2 596.4 3%
EBIT 393.1 539.0 37% Driven largely by reduced losses from the container liner division. Generally
weaker performance from other divisions.
LNG, Petroleum & Chemical 413.1 409.8 (1%) Fleet expansion negated by lower petroleum and chemical freight rates.
Offshore & Heavy Eng. 233.8 152.6 (35%) Normal quarterly fluctuation in profit recognition.
Integrated liner logistics (272.6) (134.7) (51%) Restructuring started to bear fruit.
Non-shipping 18.8 111.2 >100%
Net inc/(exp) (102.5) (86.6) (16%)
Associates (11.5) 19.0 nm
EI 7.1 0.0 nm
Pretax profit 286.2 471.3 65%
Taxation (52.5) (10.3) (80%)
Minority interest (37.2) (33.1) (11%)
Net profit 196.4 428.0 >100% Driven largely by reduced losses from the container liner division.
EPS (sen) 5.1 9.6 89%

Pretax profit (ex-EI) 279.1 471.3 69%

Net profit (ex-EI) 189.4 428.0 >100%

EBIT margin 12% 16% 5% pts Driven largely by reduced losses from the container liner division.
Pretax margin 9% 14% 6% pts
Effective tax rate 18% 2% (16% pts)

Table 4: Sum-Of-Parts Valuation For MISC

RMm RM/share Basis
LNG 16,467.2 3.69 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 12,109.0 2.71 16x 1-year forward earnings
40,938.3 9.17
Net debt (4,922.6) -1.10 As at 31 Mar 10
Fair value 36,015.7 8.07

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Table 5: Earnings Forecasts Table 6: 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 (units) 29 29 29

Turnover growth (%) (12.7) 5.1 4.5 4.2 Petroleum tanker fleet (units) 67 75 78

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.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
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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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services
from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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