MISC- darkest before dawn?

Corporate Development Update (Belated)

In early December, MISC announced that it shall exit the liner business (here). To wit:

MISC’s liner business suffered a total financial loss of US$789 million (RM2.5 billion) over the past three financial years which had impacted the overall performance of the company.

The group expects to incur further losses in the current financial year ending Dec 31, 2011 as the expected one-off costs from exiting the liner business are estimated to be approximately US$400 million.

Note: This write-off has yet to be booked in. If this is taken into the books in December, it will affect the bottom-line for QE31/12/2011 & FY2011.

Results Update (Belated)

For QE30/9/2011, MISC's net profit increased by 16.4% q-o-q but dropped by 61.8% y-o-y to RM141 million. This was on the back of a lower turnover of RM2.617 billion- a drop of 13% q-o-q & 15% y-o-y.


Table: MISC's last 8 quarterly results



Chart 1: MISC's last 22 quarterly results

Technical Outlook

If you look at the monthly chart below (Chart 2) & the chart for MISC's last 22 quarters' performance, you can see clearly that the peak in the turnover & profit in FY2008 was followed by the peaking of the share price for MISC.


Chart 2; MISC's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

The rounding top was completed when MISC broke below the horizontal support of RM7.00 (based on the above semi-log monthly chart from Tradesignum) or RM6.50 (based on the linear weakly chart from Quickcharts, Chart 3 below). MISC is now testing its horizontal support at RM5.50. If this support is also violated, the stock may continue to slide all the way to the next strong horizontal support at RM4.00 (see Chart 2).


Chart 3: MISC's weekly chart as at Dec 13, 2011_11.00am (Source: Tradesignum)

How much more would the share price retreat in view of the huge loss to be booked in for QE31/12/2011? We could see a turning point for this stock over the next few weeks (hopefully, not months) after MISC has finally completed its disposal of all the vessels in the liner business. This by itself is not an easy task given the weakness in international trade as well as the trend towards newer & bigger vessels. Nevertheless, we can take comfort in the fact that a stock would normally turn the corner after the company made the difficult decision to exit or dispose off a loss-making business. The question is how low would the share price go before it begin to recover. Would it be RM5.50 or RM4.00?

Conclusion

Based on past precedents, MISC should be poised to turn the corner after it exit the loss-making liner business. As such, the next few weeks or months would be a good time to buy into this stock, which holds good potential due to the strong demand for the transportation of LNG.