By Samantha Joseph
National carrier MISC’s parent company Petroliam Nasional (Petronas) may be putting it out on the streets if it can’t privatise it into the fold.
MISC took a blow last week when its main shareholder Petronas struck out on its own to directly procure new-build Liquefied Natural Gas ships, a role formerly played by MISC, and along with that will not be chartering new ships from MISC.
MISC has always been the sole supplier of LNG ships for Petronas’s LNG business, since Petronas acquired MISC stakes in 1998 and injected Petronas’s owned five Puteri Class LNG ships into MISC, a HLIB Research report noted.
Petronas is retaining MISC to provide project management and technical consultancy services during the construction of the new LNG ships, a position that HLIB’s analyst Daniel Wong says will likely contribute to lower earnings for MISC.
According to Petronas, this is part of its strategy to optimise the value of its LNG business and will allow Petronas to have direct access to LNG shipping capacity at the lowest possible cost.
Earlier this year, an attempt by Petronas to privatise the shipping company was sunk by minority shareholders, with only 23.4% of them agreeing to privatisation while the rest withheld from agreeing. This left Petronas with 86.07% of the shares, only 3.93% short of the 90% needed for privatisation.
Analyst Raymond Yap of CIMB noted that since the termination of Petronas’ general offer, MISC’s share price has done well. “This stock hit a one-year high of RM5.85 on July 23, narrowing the gap to its SOP of RM6.20 to only 5.6%.
“In the unfortunate new reality of MISC’s diminished relationship with Petronas, we believe that MISC’s share price should once again reflect a large discount to its underlying SOP,” Yap said.
This new move by Petronas does not bode well for MISC. By repudiating its traditional charterer relationship with MISC, Petronas is ensuring that MISC will not be able to sign 20-year contracts for the eight new LNG ships that Petronas is looking to buy, Yap said.
“This is very bad news for MISC because LNG tanker earnings have helped underwrite the container, petroleum and chemical shipping losses in the past,” Yap said.
Traditionally, MISC has owned all of the vessels that Petronas uses to ship LNG from East Malaysia to customers in North Asia. These are chartered from MISC on 20-year time charter contracts.
“Over the next five years from 2014 to 2018, contracts for seven LNG ships will expire. We think that five will be renewed at lower rates, and two will not. The net result is that MISC’s LNG revenue will fall 20% between 2013 and 2019,” Yap added.
HLIB Research pointed out that this step could be a lead-up to Petronas attempting another general offer for MISC. “We believe that Petronas is attempting to lower investors’ expectations on MISC as well as potentially consolidating MISC back into the Group in the future,” Wong said. “We do not see the economic feasibility of having two identical LNG shipping subsidiaries, which may involve higher overall cost with lower economies of scale.”
HLIB rates MISC as a ‘buy’ and is optimistic about the potential eight LNG ships which had a call for tender in early 2013 and is expected to start delivery end 2015. The target price remains unchanged at RM6.50.
CIMB has a negative outlook for MISC’s future, retaining it as ‘underperform’ and noting that the eight new LNG shipping contracts were ‘no longer possible’ because ‘this option has now been removed by Petronas’. CIMB maintains its RM4.35 target price for MISC.
At the midday break MISC was down three sen to RM5.26. Since end last month, MISC has shed more than 9% of its value.
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