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Highest growth in profit before tax over three years
Big Cap Companies: MISC
by Kathy Fong
Keeping the ship on an even keel
The global shipping industry could well have long forgotten the phrase "plain sailing". The choppy waters through which shipping firms have been sailing in recent years have sunk many a weak player.
Although MISC Bhd has long-term contracts to transport liquefied natural gas (LNG) for its major shareholder, Petroliam Nasional Bhd (Petronas), it was not spared from the tough challenges caused by the overcapacity that has kept freight rates under pressure.
Nonetheless, the harsh conditions forced the shipping giant to change its strategy, not just for survival but also for sustainability. The group went on a divestment spree, hiving off non-performing assets, including its loss-making liner business. And that put it on a better footing to withstand the downcycle.
Now, MISC, which is 62.67%-controlled by Petronas, is the winner of The Edge Billion Ringgit Club’s highest growth in profit before tax over three years award in the trading/services, hotels, IPC and technology category.
This speaks well of MISC, the world’s leading LNG tanker operator.
Its pre-tax profit surged to RM2.22 billion in its financial year ended Dec 31, 2013, from RM1.52 billion in FY2012. Pre-tax profit continued to expand to RM2.41 billion in FY2014 and RM2.57 billion in FY2015. In effect, PBT grew at a compound annual growth rate of 19.17% over the three years.
Revenue exceeded the RM10 billion mark in FY2015, compared with RM9.29 billion in FY2014 and RM8.97 billion in FY2013.
With the improved financials, MISC has been generous in paying dividends. It declared a dividend per share of 30 sen in FY2015, substantially higher than the 10 sen in FY2014 and five sen in FY2013.
The earnings growth momentum reversed the downward trend of MISC’s share price at the start of 2013. The stock has climbed steadily since then, from RM3.80 as at end-2012 to RM9.02 at end-2015 — up 137% over the three years when most shipping counters were heading south.
MISC not only delivered impressive earnings growth during the period but also strengthened its balance sheet by paring its borrowings substantially.
Total borrowings more than halved from RM14.19 billion in FY2011 to RM6.5 billion in FY2015. Consequently, its net debt-to-equity ratio declined to barely 0.02 in FY2015 from 0.48 in FY2011. Its cash balance stood at RM5.65 billion as at Dec 31, 2015.
To stay ahead, MISC began a five-year mission — MISC2020 — at the start of the year. The corporate strategy aims to achieve a sustainable level of secured profit by 2020 and a sustainable return on average capital employed (ROACE) of more than 10% by 2020.
“In order to achieve a sustainable level of secured profit by 2020, MISC must work over the five-year timeframe to absorb all fixed costs and overheads as well as losses from our cyclical business segments during the worst of the cycles,” says its president and CEO Yee Yang Chien in the latest annual report.
“This will ensure that we never fall into the red in the worst of times. To deliver a sustainable ROACE of more than 10% by 2020, MISC must instil the discipline to spend wisely and make the right investment decisions.”