CGS-CIMB Research raises target price for MISC to RM8.61

KUALA LUMPUR (Oct 15): CGS-CIMB Research has maintained its “Hold” rating on MISC Bhd at RM8.28 with a higher target price of RM8.61 (from RM7.56) and said investors may be tempted to plough into MISC because of the eye-popping tanker rate rally, but our analysis suggests that MISC is not undervalued.

In a note Oct 14, the research house said the higher SOP-based target price of RM8.61 reflecting aggressive inputs on tanker rates and secondhand prices.

“Our SOP upgrade from RM7.56 (end-CY19F) to RM8.61 (end-CY20F) is based on 1) an increase in MISC’s shipping arm AET pretax profit forecasts for FY20F, from RM17 million to RM206 million, by reflecting a 30% year-on-year rise in weighted-average tanker rates and a substantial rise in profit margins, 2) raising the secondhand market value of AET tankers by 90% to reflect better tanker market fundamentals, and 3) increasing the valuation of MISC’s recent and potential future contract wins to give MISC the benefit of the doubt.

“Our new target price implies a CY20F P/BV multiple of 1.03x; while this is lower than the peak of 1.4x achieved in the last tanker market upcycle of 2015, we argue that our target price is reasonable in light of the derating of MISC’s ROEs as a result of the expiry of lucrative, legacy LNG shipping contracts since 2015,” it said.

Source: TheEdgeMarkets