MISC, the national shipping company with a fleet of 109 vessels flying the Malaysian flag, is making the country proud by charting impressive financial performance over the years. It has also made investors happy, rewarding them with above-average capital gains. If you had invested RM7,000 (for 1,000 shares of MISC) back in year 2001, your investment would have more than doubled to RM18,000! But some of us might have missed the opportunity. Here is a case study on how we could uncover good counters such as MISC by looking at a company’s financial performance.
An Introduction
MISC was established in 1968 as a joint-venture company by the Government and a group of private shipping players to develop the maritime industry in Malaysia. From its humble beginnings, MISC grew into a sizeable entity and in 1987 was listed on the Main Board of Bursa Malaysia Securities Berhad (formerly known as The Kuala Lumpur Stock Exchange). To date, MISC boasts a market capitalization of RM32 billion, putting it at third place after Tenaga and Maybank in terms of market capitalization.
Sailing Through the Regional Financial Crisis Period of 1997-98
It was not always smooth sailing for MISC, particularly during the regional financial crisis. First, the entry of Petronas into MISC as its controlling shareholder in 1997 was not well-received by some quarters. Then, MISC’s acquisition of shipping assets of Konsortium Perkapalan Berhad and PNSL Limited, to be merged with Petronas Tankers Sdn Bhd, was marred with allegations of a bailout. The merger exercise was completed nonetheless with Petronas emerging as the largest shareholder, with a 62.0% stake in MISC. A new management was put in place to enhance corporate governance and steer the company into strong growth and profitability. There was also greater corporate transparency as a result of the management’s regular engagement with the investment community to keep the latter abreast with the latest developments in the company.
A 5-Year Historical Perspective
Despite achieving significant improvement in its financial performance in the next three years after the merger, MISC was not well received by investors. From 1998 to 2001, MISC’s net profit rose by RM1bn (or 146%) to RM1.7bn from RM0.7bn, backed by a 66% growth in revenue to RM5.8bn. The valuation for its stock, however, trailed behind other blue chips of similar characteristics (top 10 market caps, consistent earnings, etc). Using a common yardstick, MISC’s PER valuation was in single-digit as compared to the high-teen or even in the twenties for the other big cap stocks. Also, MISC’s stock was trading at a deep discount of 28% to its Discounted Cash Flow (“DCF”) value of RM9.70 (based on a broker report at that time).
If You Had Bought 1,000 MISC Shares in 2001
That was, however, year 2001, when MISC was priced at RM7.00. Thus, an initial investment of 1,000 shares would have cost only RM7,000. Today, however, the stock is trading at around RM9.00. Do note however the stock underwent a 1-for-1 bonus issue in 2005. Thus, an initial holding of 1,000 shares in 2001 would have multiplied into 2,000 shares today with a market value of RM18,000. Simple calculation would show that this represents a total capital gain of 160% over a 5-year time horizon (not including any dividend that one received during the period). On an annualized basis, the gain was an impressive return of 21% (compounded yearly), as compared to say the prevailing fixed deposit rate of 3-4%.
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