ACCEPT OFFER. PETRONAS intends to take MISC private at MYR5.30/share with no intention to keep it listed. At an 18% premium to its pre-suspension price and 16% above our TP, this represents a good exit level when MISC’s two core divisions, chemical and petroleum shipping, are still languishing in the red with no signs of a turnaround over the next 12 months. We advise shareholders to accept this offer.

Offers MYR5.30/share. PETRONAS, MISC’s largest shareholder with a 62.7% stake, has proposed to undertake a conditional general offer to acquire the remaining 37.3% of MISC shares that it does not own, at an offer price of MYR5.30/share. PETRONAS has no intention of maintaining the listing status of MISC. We understand that the General Offer does not extend to Malaysia Marine and Heavy Engineering Holdings Berhad (MMHE), in which MISC holds a 66.5% stake.

GO at hefty premiums, 1.1x P/BV. PETRONAS’ offer is a surprise to us and the market. The offer price represents an 18% premium to MISC’s share price before it was halted from trading at noon on Thursday, and is 20% above the volume weighted average price (VWAP) of the last 5 days. It is also 16% above our MYR4.55 target price, which is pegged to 1x FY13 P/B. The offer price values the stock at 1.1x P/B and 27x FY13 PER, based on our earnings forecasts.

Privatisation rationale. PETRONAS needs MYR8.8b to buy out the remaining 37.3% stake in MISC. With a cash pile of MYR131.7b, it will have no financial difficulty seeing the deal through. While this privatisation comes at a time when MISC is passing through a cyclical trough, with earnings turning around and strong job wins in the pipeline, we reckon the need to inject capital, improve cashflows and restructure its operations are the key reasons PETRONAS wishes take this route. We do not rule out a potential re-listing at a later date.

Source: Maybank Research - 04 Feb 2013