MISC Bhd - No second general offer

Date: 
2013-10-07
Firm: 
CIMB
Stock: 
MISC
Price Target: 
4.68
Price Call: 
SELL
Last Price: 
7.50
Upside/Downside: 
-2.82 (37.60%)
Target RM4.68 (Long Term: Under Perform)

In an Edge interview, Petronas CEO said unsurprisingly that there will be no second attempt to take MISC private. He defended Petronas's decision to invest directly in LNG newbuildings, bypassing MISC. Given the poor structural outlook for MISC, we retain our Underperform rating with an unchanged target price based on a 30% discount to SOP. De-rating catalysts include the tough cyclical shipping business and expected profit declines at its LNG crown jewel. Switch to Maybulk.

Given the poor structural outlook for MISC, we retain our Underperform rating with an unchanged target price based on a 30% discount to SOP. De-rating catalysts include the tough cyclical shipping business and expected profit declines at its LNG crown jewel. Switch to Maybulk. 

What Happened 
Petronas CEO Tan Sri Shamsul Azhar Abbas dismissed market talk that its decision to order 8-10 LNG newbuildings on its own balance sheet was designed to suppress MISC's share price so that it can launch a second general offer next year and finally succeed in taking MISC private at an attractive price. Petronas had on 31 January 2013 made a conditional offer to take MISC private at RM5.30 apiece, later revised upwards to RM5.50. But it failed to get the required minimum acceptance level. Abbas instead said that Petronas's action will actually be "good for MISC" as the LNG ship purchases would have stretched its balance sheet overly. Also, MISC will not be left completely out in the cold as it will participate in providing consultancy and project management for the construction phase and may even operate the tankers for Petronas. 

What We Think 
Abbas's statement confirms our view that Petronas had long planned to order the LNG ships on its own and, therefore, launched the GO to give MISC shareholders an option to exit before the news of its plans broke. Hence, Petronas is not the "bad guy" out to punish recalcitrant minorities but rather, an honourable company focused on doing the "right thing". In retrospect, what surprises us is how MISC was led to strongly believe that it would be the party making the ship orders and how it had been kept in the dark on Petronas's ultimate designs until it was publicly known. 

What You Should Do 
Although MISC will still participate in the construction and operation of the LNG ships, the returns to MISC will never be as large as its returns if it owns the vessels directly because the largest returns always go to the one taking the biggest risks, i.e. Petronas which will commit more than US$2bn for the 10 ships. Hence, MISC's LNG earnings are likely on a trajectory of long-term decline.

Discussions
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kimkeetan

THE RESEACH REPORT ARE NOT ACCURATE-- NO STUDY ON DETAIL.
PETRONAS BUY LNG -- IS VERY GOOD MOVE FOR MISC. THIS DIRECTLY REDUCED MISC CAPITAL COMMITMENT AND INDIRETLY GENERATE HIGH RETURN FOR MISC.
THE MORE LNG COMMITED BY PETRONAS , THE HIGHER THE RETURN TO MISC IN LONG TERM . VERY GOOD FOR MISC.
ONCE CAPITAL COMMITMENT DONE , IT CAN ALWAYS BEING INJECTED INTO MISC IN LATER STAGE, THIS HAVE ENSURE MISC HAVING CONTINOUS INCOME WITH NO RISK OR LITTEL RISK.
VALUE EASILY 6.00---PETRONAS ,CEO ARE NOT DUMP/ BODOH. TAKING OVER COMPANY AT 5.50 AND FAIL, IF VALUE NOT ABOVE THAT.
EPF -- CEO ARE NOT DUMP BY SAYING ,TAKOVER VALUE TO LOW.. HE IS TOO HONEST , END-UP BEING REMOVED AND FORCE TO ACCEPT THE OFFER.

LIKELY THE TAKE-OVER FAIL...

2013-10-11 23:57

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