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Asset write-down, lower revenue erode net profit at Petronas' shipping arm

KUALA LUMPUR (Nikkei Markets) - MISC, the shipping arm of Malaysia's national oil company Petronas, said Wednesday its second-quarter net profit fell 58.7% on year, mainly due to write-down on assets, while revenue also declined.

Net profit for the three months ended June 30 totalled 556.50 million ringgit ($129.78 million) compared with 1.35 billion ringgit a year ago, the company said in an exchange filing. Quarterly revenue fell 3.8% to 2.30 billion ringgit from 2.39 billion ringgit a year earlier.

Analysts said MISC's latest results came in largely within expectation after stripping out the one-off impairment and other non-operating losses, although prospects of a sharp uptick in earnings remain bleak.

The company booked a 133.6 million ringgit impairment loss on ships, property, plant and equipment during the quarter.

"Going into second half, its petroleum segment will be more challenging due to lower charter rate and higher bunker cost," said Hong Leong Investment Bank's analyst Lin Sin Kiat. "The other segments are expected to remain stable."

MISC, part of Petronas' stable of listed companies that includes Petronas Chemicals Group and Petronas Gas, owns and operates one of the largest shipping fleet in the world with more than 100 ships including liquefied natural gas carriers, petroleum vessels and chemical tankers.

The company also has a listed subsidiary Malaysia Marine and Heavy Engineering Holdings that suffered losses as oil majors hold back aggressive exploration and production activities amid low oil prices.

For its first six months, MISC's net profit plunged 36% to 1.23 billion ringgit from 1.92 billion ringgit over the same period last year. Cumulative revenue, however, rose 10.4% to 5.29 billion ringgit from 4.79 billion ringgit over the same six months in the preceding year.

"In addition to production cuts, drawdown of crude oil and products inventory continue to dampen demand for petroleum tankers in the immediate term," MISC said. "Freight rates are also being pressured by high fleet growth in 2017."

For its liquefied natural gas shipping business, MISC said it is banking on its portfolio of long- term charters to weather a weak market affected by "new-builds delivery and expiry of older vessel charters" that has pressured spot rates.

In the heavy engineering segment, MISC said it will focus on diversifying into new revenue streams. Meanwhile, impact from recently-won contracts may not be seen immediately but the bulk of the contribution will only be realized in 2018 and beyond, the company added.

Shares of MISC fell 2.3% to 7.33 ringgit on Wednesday after the earnings announcement, while the benchmark FTSE Bursa Malaysia KLCI ended 0.2% lower.

--Jason Ng and Gho Chee Yuan

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