AmResearch expects MISC earnings to fall

AMRESEARCH Sdn Bhd expects a 25 per cent earnings decline for MISC Bhd's (3816) financial year 2009, due to higher bunker prices, port charges, crew and cargo costs.

The research house, which re-initiated coverage on MISC with a "hold" rating, said the company's chemical division is also affected by lower utilisation of vessels after two of its ships were hijacked.

Its container division is expected to post over RM500 million of operating losses, in view of significantly softening rates.

About 70 to 80 per cent of MISC's earnings come from long-term contracts, some of which stretch out as far as 15 years ahead with the shortest remaining deal only due for renewal in 2013.
This would enable MISC to ride out the current shipping downturn relatively unscathed compared to its peers.

The subsequent financial year is expected to see only a moderate recovery as rationalisation cost will be partly offset by weaker tanker, chemical and container charter rates.

However, several factors will alleviate the company's long-term attractiveness, including its strong balance sheet and prudent fleet expansion that will help it capitalise on deteriorating vessel prices.

Also, financing is a non-issue as MISC has already secured a US$1 billion (US$1 = RM3.57) credit line in October 2008.

Despite its appealing defensive values amid the current shipping downturn, earnings growth is expected at seven per cent year-on-year while timing of its acquisitive growth is still uncertain.

"MISC is already trading at the higher end of its historical PE (price/earnings) band at 16 times financial year 2010 (forecast) earnings," it showed.