MORNING CALL 23 March 2012
FLOWS;
BUYS: Genting, Gamuda, SPSetia
SELLS: TNB, Sime, Coastal
Technical Stock Alert;
TRINITY CORP (RM0.07) – Medium term chart showing signs of emerging from its trough formation. MACD has cut upwards and volume activity has steadily been increasing. A breach above the RM0.08 levels could see a bounce back to RM0.10. Trading at a 57% discount to its NA/ share of RM0.16. Trading BUY
COMPANY VISIT UPDATE; MISC (RM5.42)
A new dawn, no longer sailing into the sunset.
-The spectacular Bull Run that the shipping sector enjoyed from 2003/04 to 2008/09 resulted in a flood of new builds during the latter part of the bull market. The effects of the delivery of these vessels over the past few years coupled with weaker global economic growth has seen fortunes reverse dramatically for since 2009/10. We are into our third year of weaker rates with the traditional cycle normally lasting 3-5years.
-Petroleum Tankers; Current over supply situation to last another 18-24 months. Expect delivery this year to peak for demand to catch up with supply by 2014. Demand to be driven by news markets of African continent exporting to the Far East, increased distances of crude oil to be carried and shorter term factor of the Iran Embargo. On the supply front scrapping of single hull ships will see a reduction of 2% in the global fleet while ships which were scrapped at 25 years are being retired earlier at 20 years as bunker prices are now 720 vs. 400 (the level that the older ships were designed to operate at).
-LNG; Deferment of projects have seen rates plummet in the past year. 50 new builds ordered last year will further increase supply as these speculative bets are targeted at the Australian Gas fields. Rates have recovered above USD100k vs. average of USD80-90k mainly due to demand from Japan. MISC does not immediately stand to benefit from these rates as their fleet of 27 LNG tankers + 2 converted to FSU is on long term charters to Petronas. Expiry of these contracts will begin with 5 starting 2014.
-Container/Liner – Exiting the business as cannot establish economies of scale vs. players like Maersk who operate much larger vessels and can price their container box 30% lower. Majority of the operations will cease in June with some domestic contracts running to year end. Current book value of the division is in the vicinity of RM300-400m, a potential further 9sen/share provision if the vessels are scrapped.
-Chemical – Losses maintained due to high bunker cost but a recovery is emerging with no new deliveries and collapse of several competitors.
-Bunker sensitivity: a USD50 move on bunker rates translates into a USD10m move to bottom-line.
-MMHE – Immediate growth handicapped by capacity as current yard space almost fully utilized by its Gumusut contract. Completion of Sime Engineering’s yard seems protracted as Sime currently fulfilling its order for the Kebabangan project. MMHE is looking at either collecting a rental income from Sime for utilization of the yard space or taking over the balance of the work.
-Board may be looking at streamlining the business focus and reduce its number of business currently from 8 to 3-5 key divisions. This could involve selling down their stakes in Bintulu and North Port.
-It was indicated to us that the investing community has recently renewed interest in the stock with many funds requesting meetings including foreign. The foreign shareholding has actually increased from 4.5% to 5.7% as of end Feb.
-With improving outlook and possibility of group restructuring, we feel that at current levels, MISC offers a long term opportunity to accumulate a strategic stake. Trading at current P/Bk of 1.16x vs. historical average of above 1.5x, the stock offers a medium to long term upside potential of RM7.00 or 30%. BOW